Looking to revive your lapsed life insurance policy? Know key rules

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Life insurance companies protect your life in exchange for periodic premiums on a life insurance policy. Premium plays an important role here. What happens if you fail to make periodic payments? Simple. The policy lapses.

Insurance regulator IRDAI has specified that an insurance policy is considered ‘lapsed’ if the premium is not paid within the grace period, which is 30 days in case of annual, half-yearly and quarterly renewals and 15 days for monthly renewals.

The good thing is lapsed policies can be revived. “These can be revived any time within five years from the date of first unpaid premium. To revive a lapsed policy, you need to pay the accumulated unpaid premiums along with the interest,” says Rakesh Goyal, Director, Probus Insurance.

“Such rates are decided by insurance companies from time to time. Currently, interest rates charge by insurers are between 8-9%. Typically, interest rates are 3% plus yield on 10-year government security,” he adds.

There could be instances when insurance companies launch a special revival period during which they offer concession on the interest rates. For example, Life Insurance Corporation (LIC) launched a special revival campaign on August 23, 2021 that will continue for a month till October 22, 2021, for individual lapsed policies.

The insurance behemoth says that in view of the prevailing circumstances, concessions are being offered in late fee for all insurance policies except term assurance and high-risk plans. The concessions will depend on the total premiums paid. “There are no concessions on medical requirements. Eligible health and micro insurance plans also qualify for the concession in late fee,” says LIC in its media release.

Concessions in lapsed policies

If you have a life cover with LIC other than high risk plans such as term assurance and multiple risk policies, then you can approach the insurer. Below is the level of concessions being offered in different cases:

“There are both pros and cons of reviving the lapsed policy or buying the new one. It is best to revive the policy during the revival campaigns organised by life insurers companies as they forgo penalty charges and, in many cases, even medical check-up. Typically, most of the life insurance companies allow revival of a policy during the reinstatement period (two-five years), retaining the financial benefits,” says Goyal.

The revival is not that simple all the time. “If insurance companies feel that risk is high, they might ask the policyholders to undergo a health check-up or submit a declaration of good health. Now, that is similar to buying a new policy with fresh assessment and new underwriting,” he adds.

If someone has an endowment plan on which he has paid premiums for many years and then it lapsed, then it makes sense to revive it. “This will ensure that all the benefits are paid if the policyholders complete the full term off paying the premiums,” says Goyal.