Life insurance is a great tool to secure your loved ones and yourself against life’s uncertainties. If you opt for a policy with hassle-free claim settlement and get the appropriate riders like a critical illness cover, you and your family will have a well-rounded protection during times of need. However, it is important for you to ensure that your policy remains active by paying your premiums regularly. When the premium for a policy is not paid on time, it may lead to a lapsed insurance plan.
Let us find out more about policy lapse and how to avoid it.
What is a life insurance policy lapse?
Policy lapse is a situation where you can no longer avail the benefits and cover provided under a policy. Once your policy lapses, you cannot use any feature of the policy and will lose the right to make a claim against it.
What causes a policy lapse?
There are numerous reasons for which you may miss out on paying your premium on time. However, your policy does not lapse immediately, even if you miss the due date of payment. Insurance providers offer a grace period during which time the benefits enjoyed under a policy remain active.
In most cases, the grace period is 30 days from the day on which your premium was due4. You can make your payment during this time and your insurance policy continues without any hiccups. However, if you are unable to do so, the insurer has the option to cancel your plan, resulting in a policy lapse.
Is it possible to restart a lapsed insurance policy?
Most insurers allow a specific period within which you can restore your life insurance plan. This period can differ from one company to another. It also depends on the type of life insurance plan you opt for. Based on your payment history and nature of policy, most insurance companies levy an interest as a penalty for the missed premiums. To reinstate your policy, you just have to pay the premium amount due, along with the interest. Once these dues are paid your lapsed policy will be reinstated allowing you to continue enjoying the same benefits as before.
How to avoid life insurance policy lapse?
Here are some ways in which you can avoid getting your policy lapsed:
- Purchase a ‘no-lapse insurance’: Opting for a single premium life insurance plan eliminates the chances of a policy lapse occurring due to non-payment of premium. You simply pay the premium once and ensure that your loved are covered for the entire duration of the plan
- Sign-in for an auto-debit feature: Choosing the auto-payment feature ensures a steady payment schedule. This can be set up monthly, quarterly, or annually, depending on your budget and suitability
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