Sunday, March 29, 2009

Life Insurance Cover – Policy Lapse & Revival

Under the current economic scenario many of us are tightly placed when it comes to our finances. Many of us are in a worser situation that the others. Some of us are even unable to pay their life insurance policy dues. Under such testing times it is our prime responsibility to ensure that our insurance policies remain intact and do not get lapsed.

What is a Lapsed Policy?

The insuring company provides us the insurance policy based on the premium amount we pay them on a regular basis. This can be monthly or quarterly or half yearly or even annual.
A policy lapse means that the life insurance contract between the insurer and the insured (YOU) is terminated.

When does a policy lapse?

As long as we pay our dues on time the policy remains in force. The moment we stop paying our premiums the policy lapses and the insurance cover provided by the policy becomes nullified. A lapse occurs when premiums are not paid even during the grace period. The life cover continues during the grace period whose duration varies based on the type of policy and premium payment frequency.

What is the Grace Period offered by Insurance Companies?

The grace period offered to us differs on the policy type and the premium payment frequency. Let us take 3 major categories of policies and analyze the available grace time.

1. ULIPs that are 3 years old or less

For ULIPs that have been in effect for three or less years and that have a regular premium paying system, the grace period offered by the companies is usually one month. Once this period is over the policy lapses. But, during the grace period the cover continues. So if a claim is made during the grace period, the nominee would get the benefits.

2. ULIPS that are more than 3 years old

ULIPs that have been in effect for more than 3 years, assume a paid up value since an investment corpus is already accumulated from the premiums paid in the previous years. This means that even if further premiums are not paid, the policy continues so long as the fund value covers the expenses that the insurance company incurs in managing your fund.

3. Traditional Insurance Plans

In case of traditional policies like term plans, money back plans or endowment plans etc the insurers give a grace period of about a month or upto a maximum of 3 months. The cover continues during this period. If the premium is not paid by the end of this period, the policy lapses and the life cover ceases.

What can we do if a policy lapses?

Most insurance companies have an option wherein we can revive the policy by paying a small penalty amount. Even after the grace period is over, we can pay our premiums with a small penalty which the company takes as charges for not paying the premium on time and revives the policy.

Since insurance is an important aspect of our financial plans, it is very important that we do not delay our premium dues and pay them on time…


  1. if a life policy lapses can it be reinstated even after the grace period?

    1. Yes. If you are willing to pay all of the missed premiums along with the penalty charges the Insurance Co will revive your policy.


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