If you have purchased a term insurance policy, the last thing that you would want is a lapse in the cover. After all, you have paid your premiums consistently (up till when you couldn’t) and have enjoyed the protection.
However, what if, for whatever reason, you DO have a lapsed term plan? Well, the first and foremost step is how to renew your lapsed-term life insurance policy. And here is all that you need to know about it -
What Causes the Lapse of Term Life Insurance?
When you purchase a term life insurance policy, the idea is to have a financial replacement in the case of your unfortunate absence. And since term insurance plans usually fetch an affordable premium, the chances of lapsed term plans should ideally be slim.
However, there are a few cases which might lead to the lapse of a term insurance policy -
- Non-payment of Premiums: The demands of daily life and limited financial resources occasionally cause an oversight regarding the payment of premiums.
- Change in Financial Situation: A sudden shift/alterations in your financial stability might lead to a skip in your term insurance premium payment.
- Lack of Knowledge: Term insurance providers often do not lay out the consequences of a skipped premium. Without this awareness, you can end up missing a premium payment and hence a lapsed term insurance plan.
Why is Paying Premiums on Time Crucially Important?
Ritam, a 27-year-old, purchased a term insurance policy 2 years ago and has paid the premium timely for the last couple of years. However, due to an unforeseen financial fallout, he failed to pay the premium in his 3rd year.
Now, he has a grace period of 15-30 days after the final date of premium payment, during which he can pay the premium and keep his term plan active. But, Ritam couldn’t pay the premium even during the grace period.
So, what is he about to face?
His 2-year term insurance plan is now lapsed.
- His policy and financial protection are no longer intact. He and his loved ones are left vulnerable in case of any unfortunate event that results in permanent disability or the passing away of Ravi.
Not to cry over spilt milk, but Ritam could have completely avoided this lapse in his plan by simply -
- Setting a reminder about the payment
- Opting for limited pay premium payment mode when his financial stability permitted him to do so, or
- Choosing a term insurance plan whose premium is payable despite his financial liabilities.
Now, the question is say your term insurance policy is lapsed, should you attempt to renew the plan or just go ahead with another policy?
Should you Renew a Lapsed Term Life Insurance Policy or Buy a New Plan?
Say you have a lapsed term insurance plan, now you have 2 options - revive the old plan or take on a new one. The decision relies on use case basis -
| Case | Details | Conclusion |
|---|---|---|
| Case 1: Mr Aman, a 25-year-old, had a policy with a tenure of 30 years. His lapse in payment happened in his 20th year. |
|
In this case, it only makes sense to try and renew his plan. |
| Case 2: Mr Bhuvan, a 25-year-old, had a policy with a tenure of 30 years. His lapse in payment happened in his 2nd year. |
|
In this case, he might find that purchasing a new term insurance policy will be much more practical and economical. |
Thus, whether you should be renewing a lapsed policy or purchasing a new one completely depends on the tenure covered, the residual tenure of the policy and a comparison between the premium for a renewed plan and a new policy.
How to Renew a Lapsed Term Life Insurance Policy in India?
The steps involved in renewing a lapsed term life insurance policy in India vary depending on the insurance company. However, the general process is as follows:
STEP 1: Contact your insurance company and let them know that you want to renew your lapsed term insurance policy.
STEP 2: Provide the insurance company with the following information:
- Your policy number
- The date your policy lapsed
- The amount of premium you are willing to pay
- Your current health status
STEP 3: The insurance company will review your information and decide whether or not to approve your renewal request.
STEP 4: If your renewal request is approved, you will be required to pay the outstanding premiums and any applicable penalties.STEP 5: Your policy will then be reinstated and you will be covered again.
Important Things to Remember When Renewing a Lapsed Term Life Insurance Policy in India
- Starting Policy Reinstatement: Say, you've passed the grace period, and you have failed to pay your premium. You can opt for a policy reinstatement option enabling you to renew a lapsed policy. Expect a penalty or interest costs in addition to unpaid premiums.
- Getting a Health exam: Depending on how long your insurance has lapsed, insurers may want you to get a health exam before having your coverage reinstated. This evaluation makes sure that your health hasn't changed over the intervening time.
- Evaluating the Cost: Renewing an expired policy may be a possibility, but the associated costs must be taken into account. A higher premium could result if insurance providers recalculate them based on your current age and health.
- Consider a New Policy: It can be worthwhile to look into the possibility of a new term life insurance policy if the cost of reactivating the expired policy will be very high or if your health has considerably altered. This strategy offers a clean slate and enables you to customise protection to meet your present needs.
Conclusion
A lapsed term life insurance policy can still be salvaged with timely premium payments and utilizing the grace period. After the grace period, choose wisely between reinstating or getting a new policy based on your paid and residual tenure.