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What is a Lapsed Policy?

27-07-2022 |

A life insurance plan is designated to provide financial security to your family in your absence. It will provide the sum assured to your nominee in the event of your unexpected demise. However, the life insurance policy plans cease to provide the benefits and the life cover if you end up in a situation when your policy lapses. Life insurance plans lapse due to certain reasons. However, you can also revive it timely based on the terms and conditions of your insurance provider. Here is a detail about a lapsed policy that you need to know.



What is a Lapsed Policy?

A lapsed policy is a life insurance plan that declines the applicability of death and maturity benefits. Therefore, your insurance provider will reject any death claims registered against a lapsed policy.



What Causes a Life Insurance Policy Lapse?

A policy lapse occurs when you have not paid your premium in life insurance before the due date. There might be several reasons for not making your premium payment on time. For example, you might have been under a financial crisis, not satisfied with the benefits provided by your insurer, found a better life insurance plan at an affordable rate, etc.,

Under such circumstances, you will get a grace period in which your insurance provider will still accept your premium payment and revive the benefits. However, the life insurance plan will lapse if you still fail to make the premium payment during the grace period.



What is a Grace Period in the Life Insurance Plan?


The grace period in a life insurance plan is the time your insurer provides to make the premium payment if you have failed to do so before the due date. If you have made the premium payment during this grace period, you will be able to receive the benefits without any discrepancies. The grace period for any life insurance plan is generally 30 days. However, it is subject to change based on the insurer's terms and conditions.

The grace period will start immediately after the due date. And the benefits under the life insurance will still be applicable during the grace period.



How to Avoid Insurance Lapse?

Failing to make the premium payments regularly leads to an insurance lapse. Here are a few ways to avoid leading to such conditions.

  • Opt for an automatic premium debit from your account based on your payment frequency. For example, if you make your premium payment monthly, you can activate the auto-debit feature to pay the premium on a certain date after receiving your salary.

  • If you are not good at remembering to make the premium payments monthly, semi-annually, or quarterly, then you can pay them annually. It will suffice for the requirements, if any, for the entire year.


Is There A Way To Reinstate A Lapsed Insurance Policy?

Insurance providers offer a procedure to revive lapsed life insurance policy.

The primary purpose of life insurance plans is to protect your family financially in the event of your unexpected demise. Therefore, in case of a default, the insurer provides a way to reinstate the policy back into force. However, reviving a lapsed policy is expensive.

The insurance provider charges a rate to revive the insurance lapse to avoid future lapses through the policy tenure. If the insurance policy lapse happens due to health reasons, you might have to undergo a medical examination.

The revival of the lapsed policy is also allowed during a specific period only. Therefore, it is important to understand your insurer's policy terms and conditions during inception.

When you purchase our Tata AIA life insurance plans, you can read through the policy features, terms and conditions online. In addition, our customer service executive team will help you with queries and any other issues timely to present a comfortable purchase experience.



What Should You Do To Revive Your Life Insurance Plan?

There are a few steps that you need to follow when you end up with a lapsed policy.

  1. Inform your insurance provider that your life insurance plan has lapsed.

  2. The reinstating procedure is available for a certain period after the grace period. Ensure to ask the insurer about the time and the respective procedure.

  3. The life insurance policy lapse rates depend on the insurance plan, premium, and policy lapse period.

  4. Ensure to follow the procedure timely to activate the life insurance plan benefits.


What Happens If Your Life Insurance Plan Lapses?

Now that you have realised the insurance lapse meaning let us discuss what happens going forward.

  1. The first and foremost impact is the cancellation of the benefits derived from your life insurance plan.

  2. If your life insurance plan increases in cash value, your insurer might drain the cash value to pay the required premiums until it clears off completely.

  3. If you failed to pay the premiums because the life insurance plan did not yield the required benefits, you should cancel the insurance policy based on the insurer's terms and conditions. In other cases, they might review your purchase history and reject your application when you purchase a new life insurance plan from a different insurance provider.

  4. Lapsed policy refund is generally not an option provided by the insurer.


Conclusion

Life insurance is a financial instrument that protects your family during your unexpected demise. In addition, the financial benefit can help your loved ones clear off debts, pay for your future family commitments, etc. Therefore, purchasing an affordable life insurance plan and paying the premium is important to ascertain the benefits at any time. If you fail to do so, your insurer will provide a grace period to pay the premium.

The life insurance plan will lapse if you still miss paying the premium. It will cease the benefits you and your family are bound to receive. There is a way to revive a lapsed policy during a specific period. If you take the necessary steps during that period, you can get your life insurance plan active for your required benefits!



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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What happens if I delay making the insurance premium payment?

If you delay making your premium payment, your life insurance plan will lapse. However, your insurer will provide a grace period that gives you an extended duration to pay your premium and prevent the plan from getting lapsed. If your insurance plan lapses, you will not be able to claim the benefits.

Are the death benefits applicable during the grace period?

Yes, you can claim during the grace period in the event of any unexpected demise.

Can the nominee claim the death benefit on a lapsed policy?

No, the nominee cannot claim and receive the benefits of a lapsed insurance plan.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.