Insurance is a long-term commitment. Yet not many are able to continue it till the end. The reasons for discontinuing the policy could be many, ranging from lack of funds to misselling of the product. Whatever the reason for terminating the policy the one who suffers is a policyholder because of high surrender charges, particularly in the case of endowment policies, and procedural hassles in reviving the old plan.
Having said that it is always beneficial to revive an old plan because a policyholder has already paid premiums in the past and by leaving it midway one loses out on its benefits. Moreover, the new policy might become costlier because of increased age and deteriorating health conditions.
“Life Insurance facilitates long term savings and the benefits multiply with time. This means in the first year a relatively smaller portion of the premium is invested vis-a-vis the subsequent years - where the entire premium may be part of the investment portion. Hence, in most instances, it is advisable to revive the old plan as against buying a new policy. Also, buying a new policy would mean fresh underwriting and the premium amount could be higher considering your increased age,” points out Rushabh Gandhi, Deputy Chief Executive Officer at IndiaFirst Life.
Rakesh Goyal, director, Probus Insurance Broker, explains: “When someone buys an insurance policy, they have to pay a certain amount of premium every year till the policy term. If, due to some reason, they are unable to pay the due premium on time or within the grace period provided by the insurer, the policy lapses. However, there is an option to restore your lapsed policy and make it active again.”
The standard procedure is to pay the due amount of premium and interest along with the penalty imposed by the insurance company. The insurance company may also charge medical costs in case the insured undergoes a fresh medical check-up.
“If the policyholder applies to revive your policy within the six months from the date it got lapsed, they can contact the insurance company and pay off the overdue premiums along with any interest and revive the policy,” said Goyal.
What happens if the policy has lapsed for more than 6 months?
“If it’s been more than six months from the date of policy lapsed policyholder must pay the overdue premiums, along with interest at a rate between 12-18 per cent of the premium amount. The penalty is also levied depending on the insurer’s norms, policy lapse time, and type of policy,” Goyal added.
Gandhi explains further, “In certain instances, wherein there is a meaningful drop in premiums, there could be a case for lapsing the earlier policy and buying a new one. But these instances are few and far apart.”
Moreover, in the case of lapsed policy for more than six months, the revival of the life insurance policy is at the discretion of the insurer. The life insurance company may alter the original terms and conditions of the policy, increase the premium, or ask for a health certificate.
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