When it comes to securing the future of your loved ones, a life insurance policy plays a crucial role. It ensures that in your absence, your loved ones do not face any financial problems. To make sure that you receive this assurance throughout your life, you must keep the policy active and pay premiums on time. However, due to some situation or another, you may miss out on premium payments. This can lead to a policy lapse, which means that the coverage and the benefits are no longer active.
What is Meant by a Lapse in a Life Insurance Policy?
When a life insurance policy lapses, it means that the policyholder or nominee can no longer avail of the policy benefits. One of the most common reasons for a policy lapse is the non-payment of premiums by the policyholder.
Insurers provide a fixed due date for the payment of the life insurance premium. If you miss the due date, you will be notified and given a grace period. This period usually lasts for around 15 to 30 days after the due date. If you fail to make the payment within the grace period, the policy will lapse, and the plan will cease to offer the benefits it originally extended.
In case of a lapse in policy, the policyholder is no longer entitled to any coverage. So, if any unfortunate event were to befall the policyholder, the nominee will not receive any death benefits.
In most cases, a lapsed policy can be revived. You can reach out to your insurer for the same. However, note that the cost of reviving the policy can be quite high. Hence, it is ideal to pay your life insurance premiums on time. It ensures that your insurance budget stays on track. It also makes sure that your loved ones continue to receive the benefits of your financial planning.
Nonetheless, if for some reason you happen to end up with a lapsed policy, you may consult your insurance provider to seek a renewal. Renewing your life insurance policy on time is important as it ensures the coverage you seek for your nominee.
Consequences of a Lapse in Policy
Here are some of the consequences you may face if you let your life insurance policy lapse.
Loss of the Life Cover
The biggest drawback of a lapse in policy will be the loss of financial protection the policy is providing. You will no longer have the assurance that, during an unfortunate event, the life cover will take care of your family’s finances. If something does occur, the insurance company would not be liable to pay the sum assured to the nominee.
No Return of Premiums
If there is a lapse in the policy, you will not get your premiums back, even if it is a term plan with a return of premium. For the return of premiums to be a possibility, the policyholder must complete all premium payments.
Furthermore, by allowing the policy to lapse mid-term, you may be letting the premiums you have been paying for so long go to waste.
Potential Impact on Future Plans
If you let multiple policies lapse, it may affect your eligibility when you buy life insurance plans in the future.
High Costs of Reviving the Policy
Many insurers will allow you to revive a lapsed policy, i.e., bring its coverage back. However, the revival process may include having to go through medical tests and other formalities. This might hike up your insurance budget which could be easily avoided by renewing your life insurance policy on time.
Loss of Additional Benefits
If you have opted for a life insurance rider like the waiver of premium rider or the accidental death benefit rider with your plan, you will lose those as well. You will no longer be entitled to the benefits mentioned under the rider clauses.
How to Avoid Letting Your Policy Lapse?
With these fundamental tips, you can avoid missing premium payments and the policy lapse that may occur as a result.
Step 1: Opt for Reminders and Auto-debit Features
Make sure you are reminded of the premium due date. In addition, also opt for the auto-debit feature wherein the premium is automatically deducted from your bank account. This ensures your premium is paid on time during the life insurance renewal process.
Step 2: Ensure the Premiums are Affordable
When finalising the plan, make sure the premiums are affordable for you in the long run. You can use a life insurance calculator to check premium estimates for different plans and choose a suitable one.
Step 3: Select the Right Premium Frequency
You can choose a premium payment frequency - monthly, quarterly, half-yearly, or yearly - based on your income flow, budgeting, and other needs.
Step 4: Select the Right Type of Plan
There are various types of life insurance plans in the market. Some tend to be more costly than others due to the benefits they offer. Hence, review if you need the additional benefits and only buy a life insurance plan that you feel fits your needs. Doing so will make the premiums affordable and easier to pay in the long run.
A policy lapse can undo years of your financial planning. It not only ends your life cover but also affects your family's financial future. If your policy does lapse, make sure to revive it within the given time frame. By being proactive about your premium payments, you ensure that the future of your loved ones remains financially secure. In doing so, you also get to enjoy peace of mind.
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