How to revive a lapsed insurance policy?

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Life insurance is a long term contract for achieving your long term goals. Belying the notion it is often seen that policyholders often surrender or abandon their policy midway. Consider this: according to the latest report by the Insurance Regulatory and Development Authority (IRDA) insurers paid a sum of Rs 1.22 lakh crore in 2019-20 in 2019-20  on account of surrenders and withdrawals to policyholders. The figure was Rs 1.11 lakh crore in 2018-19. The increase in number underlines the fact that a growing number of people are not able to complete the tenure of their policy. The reasons are many ranging from mis-selling to the urgent need for money.

So, if you are one of those who stopped paying premium midway and now worried about what to do, insurance company have an option to revive lapsed policy.

Traditional plan: If the insurance premium is not paid after the expiry of the grace period, which is generally one month for yearly, half-yearly and quarterly payments and 15 days for monthly payments, then the policy is considered lapsed. After the policy being lapsed insurers give a window of around two to five years for reviving the policy.

You need to check with your insurer about the revival period as it varies from company to company and product to product. At the time of revival, you need to pay a penalty and might have to undergo medical tests again while reviving your policy. Insurers generally keep launching their special revival campaign for the continuation of the lapsed policies. During the revival campaigns, companies forgo penalty charges and, in many cases, even medical check-up.

Recently Life Insurance Corporation (LIC) launched a special revival campaign on August 23, 2021, that will continue till October 22, 2021, for individual lapsed policies

Unit Linked Insurance Plans (Ulips): Ulips s have a lock-in period of 5 years, therefore make sure that you continue paying at least 5 years premium. In case premium payment is stopped within 5 years, then after the deduction of surrender charges the fund value gets transferred to the discontinuation policy fund. The amount is paid to the policyholder only after the completion of five years.

In between, however, the policyholder is given the revival window of two years which should be carried out before the expiry of the lock-in period. If the two year revival period is not completed at the end of the lock-in period the payment is made at the end of 5 year lock-in period or revival period, whichever is later. For example, if the policy gets lapsed in the fourth year the revival window will still be two years.

If the premium payment is stopped after the completion of five years then you can either completely withdraw the amount or revive the policy within two years from the date of discontinuation.

Cost of revival: To revive a lapsed policy, you need to pay the accumulated unpaid premiums along with the interest which is currently in the range of between 8-9%. Interest rates are 3% plus yield on 10-year government bonds.

Life insurance is a long term contract. Commit only if you can pay premiums for the long term.