For any individual, term insurance is imperative to keep their family secure and term insurance is supposed to be renewed regularly. Due to the bustling ways of life, you may forget to pay premiums regularly and this shortcoming results in the policy getting lapsed.
Many times, a person is faced with the dilemma to revive their lapsed policy or to buy a new one. This article covers everything you need to know about it.
What is a Lapsed Term Insurance?
- A Lapse simply means that the term insurance is not a continued contract between the policyholder and the insurer anymore. And the consequences of a lapsed policy might not be good. It takes away all the benefits associated with the policy. So, if you are someone who wants to know more about a lapsed term insurance, keep reading.
- Every company has a grace period in which the formerly insured person gets an extra period to pay the term insurance renewal premium. The grace period varies according to the mode of premium payment you choose.
If you pay premiums annually, you are eligible for a grace period of 30 days and if you pay monthly premiums, you get a renewable grace period of 15 days.
- There is something called the unit-linked insurance plan (ULIP) in which both insurance and investment go hand in hand. A small portion of your money in these kinds of plans goes for the security of life and another portion is invested in the capital market. If you are a ULIP holder, your grace period entitlement is of 75 days.
- Now, when a policyholder is incapable to pay the premium in this grace period, his policy lapses resulting in a huge loss to the policyholder.
All the premiums paid by them are lost and the coverage too gets terminated. If the policyholder, unfortunately, dies during the grace period, their nominee does not get any death benefit, which is why the revival of a lapsed term insurance is of huge significance.
- Keeping in mind how swiftly the medical and other service costs are rocketing up and the motto to safeguard the beloved ones, it is very important that a person has an on-going term plan.
- The majority of the insurance organizations now offer a revival of a lapsed plan. But for this, you may have to cash in some extra money as the revival fees, interest charges, penalties, and costs of medical tests. A medical test might also be done for reviving the policy.
- Any policy can be revived within 5 years from the date of the first unpaid premium. Depending on the insurer’s policy rules, you have to pay an 8-9% penalty on unpaid premiums. The revival of a lapsed plan surely does look tempting- your insurer gives you a discount on penalty payment, no extra documentation required, no re-installment fee, no medical test. It looks hassle-free but is it better than buying a new plan?
Revival or a New Plan? How to Decide
Many aspects are supposed to be considered while deciding if you want to go for a revival of a lapsed plan or buy a new plan.
- You have to take into account what your age was when you bought the insurance and what your age is now when you want to revive it.
- If you find buying a new plan is more affordable than paying the debts of a lapsed plan, then it is fine for you to go for a new plan.
- You need to narrow it down to what your income, savings, and investment ratio are.
- It also matters if you had bought the policy offline or online. A minimum sum assured in buying an online policy is always higher than the ones offered offline and the term plan is available at about 25 percent lower premium than the offline version. In such a case, buying a new policy would be way more affordable than paying the lagging premiums with penalties and undergoing medical tests for the revival of the lapsed term insurance.
- Most companies do not give you a new plan if you have developed a new illness during the grace period and in such situations, it is best to go for the revival of the lapsed plan.
- If your tax due date is near and you want to keep things hassle-free, then going for revival seems like the best option. Thus, reviving a lapsed plan or buying a new one varies from case to case.
This year, LIC launched a policy revival campaign allowing people to revive their lapsed insurances thus allowing restoration of security of their policyholders. Similarly, many times some insurance companies conduct such drives keeping in mind the well-being of their policyholders. It is always advisable to revive your policies in such campaigns as these allow a great concession on premiums.
Though it is always advised that you pay your premiums regularly and not let the policy get lapsed if any misfortune occurs, it is important to take advantage of such plans since these protect something of your very own, this is your life and the well-being of your loved ones.