Life Insurance Policy Lapse: How to Revive, How to Avoid

What is Policy Lapse in Life Insurance?

A life insurance policy lapse happens when the policyholder does not pay the policy premium within the grace period (usually of 30 days) offered by the insurance company. Once the policy lapses, the policyholder can no longer avail of the benefits and cover provided during the policy tenure.

Consequences of Life Insurance Policy Lapse

If your life insurance policy lapses, you end up losing coverage and the opportunity to make claims in the future. Even if you try to pay the premium once the grace period ends, you may not be allowed to reinstate your plan or the coverage amount might be decreased (along with a higher premium).

Here are some more details on the major implications of a life policy lapse —

• Loss of Coverage – One of the major consequences of a lapsed life insurance policy is the loss of cover. In plain terms, the insurance company will no longer pay any policy claims.
• Issues with Revival – While you can revive the policy, this revival comes with additional underwriting or proof of insurability. This can make the whole process quite hectic.
• Impact on Beneficiaries – In case the life assured passes away, the beneficiary does not get any financial safety net, causing financial turmoil to the beneficiary and other loved ones.

What to Do When Your Life Insurance Policy Lapses?

Here’s what you need to do when your life insurance policy lapses —

• Identify Why the Policy Lapsed – Start by finding out why your policy lapsed. Did you miss a payment? Was it due to financial issues or forgetting the due date? Understanding the reason will help you avoid it in the future and take the right steps to fix the issue.
• Check the Policy Terms – Review your policy documents. Some policies allow you to reinstate the coverage within a specific period. Look for terms like reinstatement period or non-forfeiture clause, which may still offer limited benefits even after a lapse.
• Contact the Insurance Company Immediately – Reach out to your insurer as soon as you realise the policy has lapsed. They’ll inform you about your current policy status, the steps for reinstatement, the deadline, and any fees or conditions involved.
• Compare Reinstatement vs Buying a New Policy – Reinstating your old policy may be more convenient. But sometimes, a new plan could be cheaper, especially if reinstatement involves penalties or medical tests.
  
  Just keep in mind that a new policy may come with higher premiums based on your current age and health. For instance, if you started your policy at the age of 25 years but your policy lapses now, when you’re 40, you can face higher premiums on applying for a new plan.
• Know the Coverage Impact – When your policy is inactive, you don’t have life cover. This means your beneficiaries won’t get the death benefit if something happens to you during that time. Reinstatement may restore full benefits, but be sure to confirm if any terms have changed.
• Ask About Flexible Payment Options – If the loss of coverage happened due to financial struggles, ask your insurer about payment relief options. This can include monthly plans, reduced premiums, or short-term premium holidays to help you maintain coverage.
• Get Expert Guidance – A financial advisor or insurance expert can explain your choices, compare reinstatement and new plans, and help you choose the option that fits your needs and budget.

Hacks to Prevent Life Insurance Policy Lapse

Here are some tips to prevent a life policy lapse —

• Set Up Auto Debits – One of the best and easiest ways to prevent policy lapse is by setting up auto-debit on your bank account with the due date. This eliminates the risk of missing out on the payment on the due date. However, make sure that you have sufficient balance in your account.
• Create Payment Reminders – If you don’t want to set up automatic payments, create reminders to remember when the payment is due. You can create calendar updates on your device or use an app to do so. This gives you enough time to arrange funds and make payment by the due date.
• Align Premium Payments to Your Pay Cycle – To manage your finances easily, you can align your premium payment dates to your pay cycle. For instance, you can align the premium payment date just a few days after you receive your salary.
• Opt for Annual or Half-Yearly Payments – Life policies offer financial flexibility — you can consider going for annual or half-yearly premium instalments instead of monthly. Several insurance companies offer a discount for paying larger amounts.
• Opt for Limited Pay Premium Payment – This is one of the most convenient ways to pay the entire premium in advance. You pay the premiums for a limited period and enjoy coverage for a long period, which also reduces the chances of a lapse.
• Connect with Your Insurance Company – If you think you might miss a payment in the upcoming month(s), contact your insurance company right away. Reaching out early gives you the best chance to work out a solution that fits your situation.

Read More: Term Insurance with Limited Pay Option: Pay Less, Cover More

Can You Revive a Lapsed Life Insurance Policy?

Most life insurance plans in the UAE come with a revival option, allowing you to reactivate a lapsed policy if you decide to continue it. To use this option, however, you must follow a set process —

• Provide proof of insurability – This can include health or financial documents, depending on how long the policy has been inactive and the insurer’s requirements.
• Pay overdue premiums – You’ll need to pay all unpaid premiums along with any revival or late payment charges.
• Undergo a medical test – Some insurers may ask for a health check to confirm you’re still insurable.

Frequently Asked Questions

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