While more people are buying insurance online, the rate of lapsing of policies in terms of filing premium on time has also increased. “The lapse rate in unit-linked insurance plans (Ulips) is higher by 10 to 15 per cent than it is in traditional policies,” says Pawan Verma, chief operating officer, Star Union Dai-ichi Life Insurance. However, insurers give you some grace period to revive the policies, sometimes with additional penalty.
Deepak Sood, managing director (MD) and chief executive officer (CEO) at Future Generali India Life Insurance says lapse is witnessed more in small ticket-size policies and term/pure protection plans. This is because, insurers offer competitive prices on term plans even to people of higher ages. Hence, it has become easy to switch insurers, in case the policy lapses.
Revival of a policy depends on your financial situation. If there is a cash problem, you can revive the policy subject to certain conditions. For instance, if premium payment mode is done on quarterly, half-yearly and annual basis, then a grace period of 30 days (from the original due date) is given to pay premiums. Whereas policyholders who pay premia on a monthly basis get a grace period of only 15 days. During the grace period, the policyholder is entitled to all the benefits under a policy, such as getting entire sum assured in case of a claim and enjoying the benefits of the riders taken on the policy.
After the grace period, the benefits cease to exist as the policy is said to have lapsed.
How to revive a Ulip?
“If a Ulip purchased before September 2010 has lapsed, the surrender charges which are as high as 10 per cent will eat into the savings giving less benefits to the customer,” says Verma of Star Union Dai-ichi Life Insurance.
If the premium is not paid in the reinstatement period, which is a 15-day grace given over and above the 30-day grace period, the money goes into a discontinued fund. It is mandated by Irda that the discontinued fund will give a minimum return of 3.5 per cent. Hence, it varies from insurer to insurer on how much return that discontinued fund will generate. If the policyholder dies, while the policy has lapsed, he will only get the fund value and not the sum assured.
To revive a lapsed policy, one has to pay the previous premiums plus the interest, which is usually nine to 12 per cent depending on the insurer.
While reviving a Ulip, some insurance companies allow use of the fund value to make the payment for the premium, says P Nandagopal, MD and CEO of India First Life Insurance. So, it is possible the fund value may go down, though the cover or sum assured will remain the same.
How to revive a traditional policy?
If the policyholder pays a premium for three consecutive years, then the insurer will not treat the policy as lapsed. This is called a paid-up policy.
In a paid-up policy the insured gets the benefit, which is in proportionate to the premiums paid. If a policy is not revived up to six months it is treated as a minor revival, whereas, policies not revived up to two years are called major revivals. In case of a minor revival, no documentation is required, but, in case of a major revival, there are chances your insurer may ask you to provide a medical declaration irrespective of your health.
Most insurance companies also come out with special revival campaigns during which they waive off the requirement of medical tests or offer discounts on the interest. So, policyholders can take advantage of such schemes to revive their policies.