Lapsed Insurance Policy – Renewal, Claiming, How To Get Benefits

Lapsed Insurance Policy – Basics

Definition: When a policy holder fails to pay premium, the policy he/she holds gets terminated/lapses. This applies to all the types of insurance in the market – auto, life, home etc.

How It Affects: In case of a lapsed policy; the person himself and the one’s who are financially dependent on the policy holder won’t get any benefits.

What are the reasons of policy holder not paying premiums causing cancellation of policy: There are many reasons why policy holder fails in continuing paying the premiums:

1) Becomes financially insecure (In this case, you can contact your insurance company to modify the plan acc. to your requirement which will reduce the premiums to be paid. But in this case, sum assured will decrease). Also see how to become financially secured.
2) Fails to remember
3) Gets better offer from some other insurance company
4) Foresees less future value in the policy

What is the grace period offered: For monthly payers, 15 days is the grace period whereas 30 days is the time limit given to the others.

Will I get any reminder: Yes. Your insurance company will send you an reminder providing a grace period.

What to do when policy lapses: There are terms and conditions associated with renewal of terminated policy. Insurers will always check the reasons mentioned for the failure of paying premiums are valid or fraudulent. If policy holder is found deceptive; then company won’t consider your application.

If you:

  • Activate policy before 6 months from the termination date: Pay overdues & interest
  • Renew after 6 months from the expiry date: Pay overdues, penalties & interest. Normally the interest charged is high 15-20% of the premium.

What benefits are received when any lapsed policy is reinstated

  • Full Benefits are offered after renewal. However, claims can be denied in case suicide by the policy holder within the first year. 
  • When insured passes away after 2 years, insurer will conduct an inquiry before giving away the benefits to the dependandts or beneficiary.

Claiming for a lapsed policy – Benefits Received

1) Less than 3 years old and something happens to you after the termination; your beneficiary:

a) Will not get any benefits OR
b) Will receive premiums paid (depending on the terms and conditions mentioned in the policy)

2) More than 3 years old after the termination:

Dependants receive some benefits i.e. reduced sum based on the calculations. No. of premiums paid/Total no. of payable premiums.

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