Should I buy a new or revive a lapsed term insurance policy?

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Siddharth Gupta (name changed), 40, wants to revive his lapsed term insurance policy. He continued the policy for two years after which he stopped paying the premium. “I discontinued the policy two years ago because of which it has got lapsed. The second wave has, however, made me realise the importance of having a term insurance policy. I wonder if now I can revive the old policy. Will it lead to extra premium?”

There are many like Siddharth whose policies have got lapsed because of some reason or the other. A policy is considered to have lapsed when the insured skips to make the due payment during the scheduled month as well as the grace period of a month offered by the insurance company. The good news is your policy is not completely cancelled till a certain duration, thus it gives an opportunity to the policyholder to resume the existing policy by undertaking certain conditions laid out by the respective insurance company.

How to revive the old term insurance policy?

The old term policy can be revived after paying the lapsed premium along with interest charges and medical costs. “The standard procedure is to pay the non-paid premium of the pending duration along with the penalty imposed by the insurance company. The insurance company may also include a revival fee and interest charge on the pending premium along with medical costs, in case an insurance company asks the insured to undergo a fresh medical check up,” said Naval Goel, Founder and CEO, PolicyX.com

Though it depends on the insurance company, most insurance companies ask for fresh medical tests if they think there is a need as per the age and health conditions of the policyholder. The policyholder may be asked to bear this cost depending on the policy of the company.

The penalty and interest could range between 12%-18%, added Goyal, but largely depends on the company’s policy and the pending premium amount.

Buy a new or revive an old plan?

It is good considering reviving an old plan as your continuity benefits do not get disturbed. Also, you save yourself from the hassle of paperwork and fresh medical tests. Moreover, if the policyholder is old and has family dependents then starting a new policy won’t be a wise idea. “It is always beneficial to revive an old plan because a person has already paid for years in the past and if the policy gets lapsed then the policyholder will lose out on its benefits. Moreover, the new policy will require fresh paperwork, registration, medical check-up and other conditions will also come along. The premium for the new policy will also be affected by the increased age and deteriorating health conditions thus it is advised to revive the existing policy,” said Goel.