Before you revive your lapsed insurance…
Incentives and lesser penalties are offered by insurance companies to lure in lapsed-policy customers. Here's what you should know.
Life Insurers LIC, Reliance Life, PNB MetLife, Aviva Life recently culminated their lapsed-policy revival campaign, Bajaj Allianz has launched its revival campaign. HDFC Life too is presently offering special waivers under its Spot Revival scheme.
A policy is considered lapsed if the premium is not paid within the grace period. According to Insurance Regulatory and Development Authority (IRDA) recommendations, a uniform grace period of 30 days is extended for annual, half-yearly and quarterly renewals, and 15 days for monthly renewals.
To revive a lapsed policy, you need to pay the unpaid premiums along with the interest. In certain cases, you may also have to undergo health checkup or submit a declaration of good health.
However, during the revival campaign period life insurers offer benefits to encourage revival. For instance, Bajaj Allianz Life Insurance is offering a 50% discount on the interest penalty built up on Traditional Policies. If you are under the age band of 55 years then you needn’t provide the Declaration of Good Health or undergo a medical test for reviving the policy. This only if you revive before March 31, 2014.
Though HDFC Life doesn’t mention the scheme period, it is waiving off the reinstatement fee, offering a 50% lower interest charges for traditional plans and the policyholder need not undergo a medical test for revival.
But before you fall for these gestures by the life insurer and sprint to revive your policy, there is a need to analyse whether coughing up the revival amount makes sense. Firstly, calculate the benefits you will receive if you revive the policy. Remember the following points when doing so:
- Bonus (declared out of the insurer’s annual profits) is not available on lapsed policies.
- If you discontinued paying premium within the first three years or before policy acquired paid-up value, the initial premium paid is forfeited by the insurer.
- The interest penalty on the unpaid premium would be 9-12% based on the policy and the insurer.
- The concession on the interest penalty on unpaid premium is allowed only once during the policy period, so if you have revived your policy earlier claiming waiver on interest you may not be able to claim the same again.
- The insurer may opt to revise the premium if your age band has changed from the last unpaid premium due date.
- If the surrender value is higher than the revival amount than you should calculate the returns vis-a-vis other instruments in case of an insurance-cum-investment policy.
This said there are situations when it is best to revive the policy. For instance, if you have developed a health issue after you stopped paying premium its better to not give up on the revival opportunity as starting afresh would mean incurring higher premium expenses for insuring your life.
If your policy has been lapsed for a longer time such as five years ago, then you will have to wait for special drives such as the LIC’s revival campaign, where for the first time policies lapsed upto five years were offered benefits. However, one should beware of the new policies being sold under the guise of revival.