How To Ensure Your Term Insurance Policy Never Lapses

What is Term Insurance?

Term insurance is a life insurance policy that offers financial assistance to your family in the event of your death. For instance, when you purchase a term insurance plan from an insurance company, the insurer provides you with a life cover in the form of a death benefit, which is essentially a certain specified sum of money. This sum of money will be paid out to your nominees/beneficiaries in the event of your death. In exchange for the life cover benefit, you are required to make periodic payments to the insurer in the form of term insurance premium.

Term insurance policies typically provide you with a life cover only for a specific period, beyond which the policy would cease to offer you any benefits. That said, here is something that you should note. The death benefit in a term insurance plan will be paid out to your beneficiaries/nominees only in the event of your death during the policy tenure. And since such a plan only offers a death benefit, the term insurance premium is usually low when compared with other more traditional forms of life insurance.What Does Policy Lapse Mean?

Every life insurance plan has a due date to pay the premiums, which may be yearly, quarterly, half yearly or monthly. If you miss the due date, the Insurer provides a grace period, too. Failing to pay the premium even during the grace period leads to policy lapse. This means that the insurance coverage and benefits would be affected. If something uneventful happens after policy lapse, the policy might either offer no benefits or reduced benefits, depending on policy terms and conditions.

 

Reasons Why Your Term Insurance Policy May Lapse

To enjoy the benefits of term insurance, you should ensure that the policy is always active. Keep paying the premiums within the due date to keep the policy in-force. A lapse occurs when you fail to pay the premiums on time. Knowing these reasons beforehand can help you prevent a term insurance policy lapse and ensure your family’s economic security.

 

1. Missed premium payment

Nonpayment of premiums is the primary reason why a term insurance policy lapses. It is extremely essential to continue paying your term insurance premiums throughout the tenure of the policy to ensure that you and your family stay protected. That said, your policy would not lapse the second you miss paying a premium. Usually, the insurance company gives you 30-days (15 days for monthly mode) grace period from the term insurance premium payment due date. Failing to pay the premium even within this period leads to the end of your coverage.

 

2. Not updating contact or bank details

An insurance firm has your contact information and bank details to remind you about the timely payment of premiums. If you change your phone number or e-mail address without notifying your insurer, you will no longer receive the reminders.

You may have set the auto-debit feature on your bank account for the payment of the premium. Update in bank details unknown to the insurer will disrupt this facility, leading to accidental policy lapse.

 

3. Disinterest or lack of clarity

Sometimes policies lapse because people lose interest or may not completely understand the significance of term insurance plans. Staying knowledgeable about the policy benefits might help you stay committed while avoiding unnecessary risks.

 

How to Prevent Term Insurance Policy Lapse

Nevertheless, there are many ways to prevent your online term insurance policy from lapsing. Here is a quick look at some of the ways in which you can do so -

 

1. Ensure that you pay premiums on time

This is obvious in itself. As long as you pay all of your premiums on time on or before the due date, there is zero chance for a term insurance policy to lapse.

 

2. Set up an auto pay facility or a standing instruction

If you find it hard to make premium payments on time or have trouble remembering the due dates, it is a good idea to set up an auto pay facility or a standing instruction with your bank. Setting up such a process is extremely simple, takes very little time, and in most cases can be done online through your net banking facility itself. Once you have set up the facility, the bank will automatically make the premium payments for you regularly on the specified day without requiring any manual intervention.

 

3. Always make sure to update your communication details

If you ever change your phone number, your email ID, or your address, always make sure to let your insurer know. This way, you can reduce the chances of missing premium payment reminders.

 

4. Smart financial planning

While planning for a monthly budget, make sure that you include the insurance premiums. Treat them as fixed expenses just like food or rent. This habit will ensure that you always have funds available for the timely payment of premiums.

 

5. Stay updated on your policy

If your insurer sends you any updates or alerts, do go through them. Be aware of the premium paying term, renewal dates, grace periods etc. Staying informed keeps you from being caught off guard, which could result in a policy lapse.

 

What are the Consequences of a Lapsed Term Insurance Policy?

If you fail to take actions to prevent a term insurance policy lapse, you may face consequences, some of which are covered below:

 

1. Loss of Life Cover

Once your policy expires due to lapsation, your family loses the life insurance protection. This means that they will no longer receive the death benefit if something unfortunate happens to you during this lapsed period.

 

2. Reinstatement Complications

Reviving a lapsed policy involves some steps. You have to pay all outstanding dues, along with the interest, which may lead to financial stress. The company may impose certain conditions making the whole process difficult and expensive.

 

3. Medical Re-examination Requirement

In some situations, life insurers request a new medical examination before restoring the coverage. If your health has deteriorated since the original purchase, your premiums may increase further. Also, the final decision of reinstatement of the policy lies with the insurer.

 

4. Financial Burden on Family in Absence of Cover

As a breadwinner of the family, if you pass away suddenly without an active life cover, your family will be in a grave financial condition. Without the death benefit, it will be tough to handle expenses like education, daily needs and EMIs.

 

Is It Possible to Revive a Lapsed Insurance Plan?

You can revive a lapsed insurance plan depending on how long it has been inactive. If you missed paying premiums and the grace window is still open, you can revive the policy easily by clearing outstanding dues. If the grace period is over, but you revive the policy soon afterwards, the policy can be reinstated with payment of due premiums and additional interest. The window available to revive the policy depends upon the type of policy and policy terms and conditions. After a longer period, insurers may request a health certificate, medical testing, or even higher charges. The terms and conditions vary from insurer to insurer.

 

Key Takeaways

1. A policy lapse occurs in term insurance plans when you don’t pay the premiums within the specified time frame.
2. Prevent term insurance policy lapse to secure your family financially.
3. Avoid policy lapse by paying premiums on time, using auto-pay, and updating contact details.
4. Select a term plan with a premium that aligns with your financial goals and income.
5. A lapsed policy results in loss of life cover, medical re-checks, increased premium and fees for revival.
6. Revival is possible, but it may result in penalties, interest, or additional conditions if delayed.

 

Conclusion

Despite following the above-mentioned ways, if you ever find yourself with a lapsed policy, do not worry. As per IRDAI regulations, an insured can revive his lapsed policy during the revival period as stipulated in the regulations. That said, your insurer might ask you to make all the missed premium payments along with a penalty and complete the necessary formalities to revive your lapsed policy.

 

FAQs

 

1. Will my premium increase if I revive a lapsed policy?

Premium may increase when reviving a lapsed policy, especially if there is a need of new medical check-ups or a risk assessment by the insurer.

 

2. How long does it take to revive a lapsed term plan?

You can restore a lapsed policy within 5 years from the date of the first unpaid premium. Revival often takes a short time if you fulfil the conditions to revive the policy. The actual time varies across insurers.

 

3. Is it better to revive or buy a fresh term policy?

Revival of policy is better than buying a new one, as a newer policy will lead to higher premiums due to age, stricter health check-ups, or revised terms by the insurer.

 

4. What happens if I repeatedly miss premium payments?

If you repeatedly miss premium payments, you can pay premiums within the grace period to avoid a lapse. However, if the policy lapses, you might incur additional interest payments when you revive the policy.

 

5. Can I change my payment mode or frequency to prevent a policy lapse?

Yes, you may change the premium payment mode during the tenure of the policy. You can choose any option from monthly, quarterly, half-yearly or yearly. However, this change is subject to fulfilling the requirements of the insurer and it might vary across policies and insurance companies. Moreover, a change in the premium payment term might not be allowed.

 

6. What documents are required to revive a lapsed policy?

You’ll need to fill out the revival form and pay overdue premiums along with interest. In some cases, medical reports or proof of good health are needed, depending on the lapse duration.