Why shouldn’t you let your policy lapse?
Consider this, you bought a Life Insurance Policy three years back and have been paying regular premiums ever since. But recently, due to some unavoidable circumstances you missed paying the premium. In such a case, your policy would be lapsed and your family will be bereft of the underlying benefits. Yes, lapses do happen!
Insurance is an ideal tool to cover the risk of your life so that in case of any adversities, your family and loved ones don’t face financial troubles. However, the risk coverage and other benefits under the policy remain valid only if the premiums are paid regularly.
In case you miss paying the premium by the due date, there is a grace period of 30 days to make the payment. And the insurer is bound to pay the policy benefits during the grace period as well. However, a life insurance policy lapses if you fail to pay the premium even within the grace period. A lapsed insurance policy can cost you dearly in terms of reduced/nil insurance cover and high insurance costs for future policy purchases. Let us consider different consequences in detail:
1. If the Policy is in force for less than three years
If you fail to pay the premium by the due date or within the grace period, the insurance policy lapses. As such, the insurer is not bound to pay you any amount in case of any unfortunate event which is simply not desirable.
2. If the Policy is in force for three years or more
Generally the insurer reduces the amount of sum assured, pro-rated with the amount of premiums paid. As such, the insurer will pay only the reduced amount in case of any eventuality. This again is not desirable as the sum assured must have been calculated by you considering the future financial requirements of the family and a reduced sum may do no good to cover the risk of uncertainty.
How to Revive a Lapsed Insurance Policy?
Considering the reduced insurance cover, you may want to look at reviving the lapsed insurance cover. However, it comes at a cost. The insurer company may call for all the unpaid premiums along with the interest on the amounts overdue to revive the policy. Further, besides fresh documentation, insurers may also like to get medical examinations to check your latest health conditions.
Additional Considerations in the Revival of Your Lapsed Policy:
You may not be able to revive the policy with the same premium and you might need to go for a fresh purchase which may indeed be costly. This might be due to the following reasons:
1. Higher Age at the time of revival - The insurance premium is calculated on the basis of age of the insured, health condition, mortality tables etc. So, one parameter which would have definitely changed would be your age. This translates to a higher premium for taking a life cover at a higher age.
2. Changed Health Conditions - There are high chances that your health condition may not be similar and hence, a higher risk premium is likely.
Avoid the hassle and stay insured
A Lapse of insurance policy indeed comes at a heavy price and hassles of additional paperwork.
It is always advisable to get yourselves insured at an early age for insurance at lower costs. Also, set autopay options in order to mitigate the risks of forgetting to pay insurance premiums resulting in lapse of policy.