Policy lapse is when your term insurance policy becomes inactive or invalid due to non-payment of premiums. When your policy lapses, you lose the coverage and the benefits of your policy. That means if you die after your policy lapses, your nominees will not receive any death benefit from the insurer.
Let’s understand how to avoid the policy lapse.
Consequences of Policy Lapse
Term insurance policy lapse can have serious consequences for you and your family. Some of them are:
- You may have to pay higher premiums to revive your lapsed policy or buy a new one, as your age and health status may change over time.
- You may have to undergo medical tests and submit additional documents to prove your insurability, which can be time-consuming and inconvenient.
- You may lose the tax benefits you enjoyed on your premium payments under Section 80C of the Income Tax Act, 1961.
- You may lose the term insurance benefits, such as loyalty discounts or bonuses you were eligible for on your policy.
- You may face legal issues or disputes with your nominees or creditors, as your policy may not be considered valid proof of your financial obligation.
What are the Main Causes of Policy Lapses and How to Prevent Them?
There are many reasons why your term insurance policy may lapse. Some of the common ones are:
- Forgetting or missing the premium payment due date or the grace period.
- Having insufficient funds in your bank account or credit card to pay the premium.
- Changing your contact details or address without informing the insurer.
- Not receiving premium payment reminders or notices from the insurer.
- Facing a financial crisis or emergency that prevents you from paying the premium.
- Losing interest or motivation to continue the policy.
How to Prevent Policy Lapse?
Fortunately, you can prevent policy lapse by taking simple, proactive steps. Here are some of them:
- Convenient payment mode: Online payment is the most effortless and fastest way to pay your premiums, as you can do it from anywhere and anytime. Offline payment is also an option, but you must visit the insurer’s branch or office, which can be time-consuming and inconvenient. Auto-debit is a mode where you authorise the insurer to automatically deduct the premium amount from your bank account on the due date. This way, you don’t have to worry about forgetting or missing the payment.
- Manage your budget: Treat your term insurance premium as a priority expense and allocate a sufficient amount every month. You should also keep track of your premium payment due dates and grace periods and mark them on your calendar or phone. You should also have some emergency funds or savings to pay your premiums in case of any unforeseen situation.
- Remember the grace period: The due date is when you must pay your premium to keep your policy active. The grace period is the extra time the insurer gives after the due date, during which you can still pay your premium without any penalty or interest. The grace period is usually 15 days for monthly premium payment mode and 30 days for other modes. This may vary depending on the insurer and policy terms. Try to pay your premiums before the due date or within the grace period, as it will help you avoid policy lapse and maintain your policy benefits.
- Inform the insurer: Keep the insurer updated about your current phone number, email address, postal address, etc. This will help the insurer send you the premium payment reminders or notices and contact you in case of any query or issue. You can update your contact details or address online through the insurer’s website or app or offline by visiting the insurer’s branch or office or calling the customer care number.
- Stay motivated: Remember the purpose and benefits of your term insurance policy and how it can help your family in case of your death. You should also review your policy periodically and check if it meets your current needs and goals. You may also opt for a no-lapse policy, a type of term insurance policy that does not lapse even if you miss a few premium payments, as long as you pay the minimum required amount within a specified period.
Conclusion
Policy lapse can have severe consequences for you and your family, such as losing the coverage and benefits of your policy, paying higher premiums to revive your policy or buy a new one, losing the tax benefits and loyalty discounts, and facing legal issues or disputes.
You can prevent policy lapse by choosing a convenient and reliable mode of premium payment, managing your finances and budgeting for your premium payments, paying your premiums before the due date or within the grace period, informing the insurer about any change in your contact details or address, and staying motivated and interested in your policy.
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