Taking a life insurance policy is essential as it will protect your family and support them financially with a substantial, non-taxable* amount in the unfortunate situation that you are no more. In addition, the coverage obtained from the insurance plan will help your family deal with any financial liabilities like mortgage, outstanding debt and loan obligations.
When your life insurance policy is active, you will never have to worry about your family’s financial future in your absence. However, maintaining the policy active is an important aspect. If you fail to maintain the policy active, it may lapse, and you may miss out on the coverage, and your loved ones will neither get the coverage nor the claim benefits.
If you wish to learn more about how a lapsed policy will affect you, you should read on as this article covers the different aspects surrounding a lapsed policy.
When do insurance policies lapse?
If you have missed out on paying your life insurance premium payment on the due date, your policy won’t automatically lapse. In such cases, you will get a grace period of up to 30 days after the due date, during which you still get the insurance coverage as per the contract. However, if you fail to make the premium payment during the grace period, the policy will ultimately lapse. After this, your insurance company will not be under a legal obligation to make a death benefit payout. Therefore, you must keep in mind the threat of a policy lapse when you’re a policyholder.
You must check for the points listed below when you plan insurance:
- Recovering a lapsed policy:
If your insurance policy has lapsed, you still have a chance to get it back. Reinstating a lapsed policy is encouraged, and your insurance company will handle the process if you approach them. However, it would depend on your policy type, provider and the contract terms and conditions. Insurance policies generally provide a window of time during which policyholders can revive their lapsed policy by paying all the missed premiums and the gathered interest.
- How soon should you reinstate a lapsed policy?
While the insurance company does grant a time frame to revive the lapsed policy, it will be quite easy and cost-effective if you revive it sooner from the policy lapse date. Within 30 days to 6 months since the policy lapse, you may not have to submit an underwriting for reinstatement. You will only have to provide a declaration of good health, along with the required premium amount, revival fee and penalty fee. After six months, you will mostly be asked by the insurance company to undergo a medical check-up. Once you’ve finished the medical check-up, your insurance company will have the right to change the terms of the contract or increase the premium amount.
- The choice between a new policy and renewing the old lapsed one:
While reviving an old lapsed insurance plan may seem a bit expensive, taking out a new plan will be even more expensive and less beneficial. You may have to forfeit your premiums which you have already paid on a lapsed policy. When you reinstate an old lapsed policy, there’s a possibility that the premium amount will remain the same. However, if you purchase a new one, the premium amount will be more than the lapsed policy. The hike in the premium amount is because as you get older, the premium amount you will be levied will rise. Therefore, it is important to reinstate your insurance plan as soon as you can.
- Taking steps to ensure premium payments are made on time will help in avoiding a policy lapse:
It can be tough to monitor all your investments and payments. Along with this, you may face difficult circumstances where you may not make the payments on time. One of the recommended ways to ensure that all your insurance payments are made on time is by setting up a service with your bank to automatically debit the premium amount from your bank account. The debited amount will be transferred to your insurance company on the predetermined dates. These services are safe, regulated and do not carry any additional charges. By setting them up, you will no longer have to worry about the premium payment dates, and it will help you be at peace knowing your insurance policy is active and in effect.
- Avoid an insurance policy lapse at all costs:
While you can take steps to revive a lapsed policy, the best way to enjoy the benefits of a plan is never to let it reach that stage. Once an insurance plan has lapsed, you and your family members are no longer covered until the plan has been reinstated. Suppose an unfortunate event occurs while your policy is yet to be reinstated. In that case, you may have to bear the medical costs or any financial liabilities that may arise out of the event. Along with this, reviving a lapsed policy comes with its own attached costs, like more premiums and penalty fees. If you fail to revive your insurance plan on time, you may have to forfeit the plan, and you may lose out on all the premiums you have paid so far. Hence, it would help if you took all measures to avoid a policy lapse.
Conclusion
Therefore, if you wish to avoid facing any situation where your family will not get the insurance coverage in your absence, you must follow the plan’s rules and stay up-to-date with the premium payments. You must also understand the policies better before purchasing them, as it will help you avoid unwanted problems.
L&C/Advt/2022/Nov/2974