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While IRDA has stated that the lapsed policy can be
revived within a period of two years if the policy was in
force for at least three years, the insurance company can
decline an application for revival if it is not convinced
about the integrity of your application, that is, the
insurance company would like to make sure there is no
intended or suspected fraud.
Therefore, the insurer can impose conditions such as
asking you to take a medical test before the policy is
revived so as to make sure that you, the insured have not
developed a new medical condition during the period
when the policy had lapsed.
Even after the revival of the policy, if the insured
commits suicide within one year of the policy’s revival,
the insurance company can reject the insurance claim.
Also, if the insured dies within a period of two years of
the policy revival, the insurance company reserves the
right to conduct an enquiry before paying off the claim to
the beneficiaries.
Can Beneficiaries File A Claim If The Policy Has
Lapsed?
This will entirely depend on the time period for which the
policy was active.
If the policy was active for a period of less than three
years and an insurance claim is filed by the beneficiaries,
the insurance company has no obligation to pay off
anything. In certain exceptional cases, the insurer might
be willing to pay the beneficiaries the premium payments
made by the insured.
If the policy was active for a period of more than three
years, as per IRDA, the dependents can get some benefit.
Again here, the beneficiaries will not be entitled to the
full sum assured. The insurance company will pay a
reduced sum assured based on some pre-defined formula,
which is typically the number of payments made to the
total number payable.
What If You Cannot Afford The Premiums?
Insurance companies do provide policy holders with the
opportunity to reduce the premium payment amount
along with the sum assured, so that they can continue to
have insurance coverage. Also, you can change the
frequency of premium payment to monthly or quarterly
from annually.
UNIT LINKED INSURANCE POLICY (ULIP)
If you have taken an ULIP, which is an investment-cuminsurance
product, rules differ because of the lock-in
period and the investment component. Last year, IRDA
came out with a set of guidelines that govern ULIPs,
Beyond Market 04th Feb ’11
effective from 1st Sept ’10. Under the new set of guidelines,
the policyholder can either seek revival of the
lapsed policy or let go of the ULIP.
Like a traditional policy, if the policyholder is not able to
pay the premium within the due date, it can be paid
within the grace period given by the insurance company,
which is typically 15 days for monthly payment policies
and 30 days for policies where premium has to be paid
quarterly or annually. Beyond this grace period, the
policy will be discontinued (new terminology for lapsation).
If your policy is discontinued, then you are left
with two options, revive the policy or surrender the same.
���� Policy Revival: Within 15 days of a policy’s discontinuation,
the insurance firm will send the policyholder a
notice to which he will have to respond within 30 days.
He can pay off the outstanding premium and revive the
policy. If he does not want to revive the policy, the
insurance company will deduct a discontinuation charge,
not exceeding `6,000, and then return the fund value
���� Surrender The Policy: If the policyholder wishes to
surrender the policy before the lock-in period of five
years (increased from 3 years), the fund which is called
the discontinuance fund will be given to him only after
five years. In the interim period, the fund will keep
earning a minimum interest of 3.5% per annum. His
policy stands terminated once he gets this money back.
HEALTH INSURANCE POLICIES
Health insurance is a one-year renewable product. Till
the regulator stepped in in March ’09, health insurers did
not provide grace period to policyholders, which meant
that there was a break in the policy and, hence, it could
not be renewed and no health coverage. IRDA has now
changed it. Health insurers have to mandatorily state the
terms and conditions for renewal along with the indicative
premiums for future renewals. Also, a grace period
of 15 days will be provided to renew the policy.
The earlier you buy your life insurance policy, the better
because you get the benefit of age and hence the mortality
charge will be lower, resulting in lower premiums.
Having bought the policy early, make sure you do not let
the policy lapse. Take necessary steps to make sure that
the payments are made in time because it is for the wellbeing
of your family.
In case of health insurance, it is even more critical to
renew your policy in a timely manner as for every claimfree
year, insurance companies offer benefits such as
increase in the sum assured. Also, pre-existing
conditions/diseases will be covered after continuous
renewal for 2-3 years, depending on the kind of policY.
It’s simplified...
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