THOUSANDS of life insurance policies lapse for a variety of reasons every year. Policyholders may not pay the renewal premium either because of a change in their financial circumstances or because they discover later that the policy was mis-sold to them and it does not meet their requirements. They may also inadvertently skip renewals because of a job transfer. While lapsed policies result in a loss for policyholders, they are also a drag on the books of life insurance companies, contrary to popular perception. This is why life insurers often make special efforts to revive lapsed policies.
THE PROCEDURE
Typically, a policy can be revived within six months of its lapsing through a simple revival. If the lapse has occurred more than six months ago, a personal health declaration needs to be submitted. The policy is then revived subject to underwriting decisions. Additional medicals may be triggered depending on underwriting decision. The policy can be revived within one, two or five years of lapsation depending on the terms and conditions of the policy, as specified in the policy document.
COST-BENEFIT ANALYSIS
While reviving a policy and continuing with the protection cover seems like a sensible idea, particularly in uncertain times like these when life insurance seems indispensable, you need to carry out a cost-benefit analysis before going ahead. You need to ascertain whether the arrears payable by you outweigh the benefits. Reviving a lapsed policy will make sense only if it is an investment-oriented policy as it will help you to reap the returns on investments made. Also, you should consider reviving a policy only if it has acquired the surrender value.
GET THE TIMING RIGHT
The time that has passed by since the lapse also needs to be taken into account. It is not advisable to revive a policy which is in lapsed condition for more than three years as the policyholder will have to pay huge amount towards the arrears of premium and interest. This is despite the fact that the insurance company was not at risk during the period the policy was in lapsed condition. It is better to go in for a new policy as per his/her financial needs. However, if the policy guarantees far exceed the interest component, the person may opt for revival.
EVALUATE YOUR OBJECTIVES
Many a times, policyholders claim to have been victims of mis-selling by insurance agents, who talk them into buying unit linked insurance plans which may not be congruent with their investment or protection objectives. Many find wriggling out of ULIPs at an early stage quite difficult due to the quantum of money committed by them during the initial years. However, instead of continuing with such policies, it is better to exit the same and redirect the premium amount to a policy that helps you achieve your goals.
