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Life insurance policies are essential instruments to safeguard your family's financial requirements. There are several aspects that you must consider when you buy insurance policies. Each of us has a unique financial profile that depends on our lifestyle, income source, and many other factors. Therefore, it is essential to choose the insurance plan that best suits your particular needs. Among various considerations, you must also be careful to avoid the chances of a lapsed policy.
In case you opt for inadequate coverage only to lower the premium rates, it will be the cause of disappointment later. An insurance-related decision that is reckless may also result in a lapsed policy. In such a situation, it can cause significant disruption in your financial planning.
A lapsed policy can eliminate the support of a financial cushion preserved for unpredictable circumstances. Let us have a closer look at the meaning of a lapsed policy to have a better understanding.
What is a Lapsed Policy?
Insurance policies require the policyholder to pay a certain premium amount to keep the insuarance plan in force. If the insured individual fails to pay the premium on time or at all, it will result in a lapsed policy. To put it simply, it means that the life insurance contract between the insured and the insurer will become inactive.
A lapsed policy occurs both in case of missed premium payment and if cash surrender value is exhausted in case of a permanent life insurance policy. The policyholder and their family will no longer be entitled to receive life coverage or insurance policy benefits in case of a lapsed policy.
It is important to note that you are entitled to a grace period after the due date of premium payment before you end up with a lapsed policy. It is the duration when the insured can pay the premium without any penalty charges.
However, a lapsed policy does not mean that all hope is lost. There are specific ways you can make sure your family stays financially secure even after lapsed life insurance policy.
It is important to note that you are entitled to a grace period after the due date of premium payment before you end up with a lapsed policy. It is the duration when the insured can pay the premium without any penalty charges.
However, a lapsed policy does not mean that all hope is lost. There are specific ways you can make sure your family stays financially secure even after lapsed life insurance policy.
Important Points Related to Policy Lapses
Purchasing an insurance policy is a significant decision that affects the present and future of your family. Therefore, it is essential to make sure that everything stays on track during the policy term. A lapsed term insurance policy will not only leave you without cover but also a loss of the money spent over premium payments earlier.
Understandably, a lapsed policy is a matter of concern among policyholders. Let us look at the critical points related to a lapsed policy in detail.
1. Grace Period Before Policy Lapse
Insurance providers consider that there may be times when a policyholder cannot pay the premium on time. In case you are unable to pay the premium on due date due to any reason, it will not automatically result in a lapsed policy.
A grace period is activated after the due date to reduce the chances of a lapsed policy. It is usually a period between 15 to 30 days within which premium payments are accepted without any extra charges. During the grace period, you and your family can avail of the insurance benefits as usual.
Also Read: Benefits of Term Insurance
However, if the insured is unable to pay the premium even after the grace period, it will lead to a lapsed policy.
1. Grace Period Before Policy Lapse
Insurance providers consider that there may be times when a policyholder cannot pay the premium on time. In case you are unable to pay the premium on due date due to any reason, it will not automatically result in a lapsed policy.
A grace period is activated after the due date to reduce the chances of a lapsed policy. It is usually a period between 15 to 30 days within which premium payments are accepted without any extra charges. During the grace period, you and your family can avail of the insurance benefits as usual.
Also Read: Benefits of Term Insurance
However, if the insured is unable to pay the premium even after the grace period, it will lead to a lapsed policy.
2. Avoiding Policy Lapse
If you are taking care of your loved ones' financial requirements, it may be challenging to stay on top of all the investments. Unfortunately, failing to keep track of the premium payment due dates can result in a lapsed policy. A reliable way to reduce the chances of a lapsed policy is to set up automatic payment for the premium amount.
Most insurance providers offer the feature of automatically drafting payments from your checking account per the terms of your plan. With regular premium payments such as monthly, quarterly, half-yearly, or annual instalments, the chances of a lapsed policy are greater. Here, automatic premium payment can help you pay the premium on time.
3. Reinstating a Lapsed Insurance Policy
A lapsed insurance policy can be immensely worrying as it takes away the promise of financial security. However, most insurance providers offer a feature to revive a lapsed policy. There is a process that the policyholder has to follow to reinstate their lapsed life insurance policy.
It will cost the individual more to reinstate their lapsed policy. It is to assure that the chances of thepolicy lapsing again will be lower in the future. In cases of a lapsed policy due to health issues, the insurer might ask for a medical examination as well.
Lapsed policy revival is possible but within a specified period only. The Insurance Regulatory and Development Authority of India (IRDAI) has some guidelines for a lapsed policy. To sum up, it is in your best interest to avoid a lapsed term insurance policy
What do You Need to Do When Policy Lapses?
Most people are diligent and thorough in the process of buying an insurance policy. It is essential to optimize the benefits that you receive from an insurance plan. For that, you calculate insurance coverage you might require to secure the future's financial needs appropriately.
All the caution that goes into buying life insurance will immediately be futile in case of a lapsed policy. It is crucial to avoid the chances of a lapsed insurance policy to steer clear of such situations. Nonetheless, it will be in your best interest to know the steps to be taken to minimize the loss in case of a lapsed policy.
Most people are diligent and thorough in the process of buying an insurance policy. It is essential to optimize the benefits that you receive from an insurance plan. For that, you calculate insurance coverage you might require to secure the future's financial needs appropriately.
All the caution that goes into buying life insurance will immediately be futile in case of a lapsed policy. It is crucial to avoid the chances of a lapsed insurance policy to steer clear of such situations. Nonetheless, it will be in your best interest to know the steps to be taken to minimize the loss in case of a lapsed policy.
- First and foremost, it is crucial to contact your insurance provider immediately after you end up with a lapsed policy. The reinstatement feature is only valid for a limited time after the grace period has ended
- Your options for reinstating the lapsed policy will vary depending upon the amount of time passed after it.
- Different insurance companies have varying terms for the reinstatement of a lapsed policy. You must disclose all information that is required during the process to avoid any problems later
- As the person responsible for your family's well-being, it is always the safest option to regularly pay your premium timely. A lapsed policy can put your beneficiary in financial trouble through no fault of their own.
As the person responsible for your family's well-being, it is always the safest option to regularly pay your premium timely. A lapsed policy can put your beneficiary in financial trouble through no fault of their own.
Frequently Asked Questions (FAQs)
Q. What happens if I Pay the Premium Late?
A. If you fail to pay the premium on the due date, the grace period between 15 to 30 days will activate. It ensures that you do not end up with a lapsed life insurance policy immediately.
Q. Are there any Late Fees for Premium Payment During the Grace Period?
A. No, there are no late fees attached to the premium amount if you pay it during the grace period.
Q. Can I Make a Claim During the Grace Period?
A. Your insurance policy offers the same features during the grace period as it usually does. It is possible to avail of the plan's benefits by claiming a settlement if an unfortunate incident occurs in the period.
Also Read: What is Claim Settlement Ratio?
Q. Does the Beneficiary Get Any Compensation If The Policyholder Passes Away With a Lapsed Policy?
A. Unfortunately, the beneficiary is not entitled to any financial compensation in case of a lapsed policy. If the policyholder dies with a lapsed policy, the insurance provider cannot provide financial assistance.
Q. Can I Choose A Different Premium Payment Plan to Avoid the Risks of a Lapsed Policy?
A. There are different premium payment plans available for various life insurance policies, such as limited pay, single pay, and regular pay. In case you select a plan with a one-time or limited payment option, it may reduce the chances of a lapsed policy.
ARN: May21/Bg/25C
