What to Do If Your ULIP Policy Lapses?
A Unit Linked Insurance Policy (ULIP) is a life insurance policy that offers investment options with guaranteed returns while providing life coverage. With a ULIP policy, you can invest in equities or bonds according to your risk profile and the returns you get depend on the investment options you pick. ULIP is a guaranteed return plan that lets you accumulate wealth over a long period to achieve your long-term financial goals.
Lapse of a ULIP Policy
However, note that if a policyholder fails to pay the premium, his ULIP policy will lapse. A lapsed policy results in the end of life coverage, and investments made under the plan also end. Suppose you are wondering what to do if your ULIP policy lapses. Keep reading to find out.
Understanding the Lapse of a ULIP Policy
To keep a life insurance policy active, the policyholder needs to pay a pre-determined premium amount at regular intervals. Here are some important terms you should know to understand policy lapse.
1. Lapsation of a Policy
Lapsation of a policy means discontinuation of premium payment by the policyholder during the period of policy operation for any reason other than the death of the policyholder. In such a case, the contract between the insurer and the insured is terminated till the policy is revived.
2. Grace Period
It is the additional period allowed by the insurer, after the premium payment due date, to pay the due premium without any interest or penalty. If the premium is paid within the grace period, you get policy coverage and benefits without interruption. The grace period may range from 15 to 30 days, as specified by the insurance company.
3. Surrender Value
It is the amount remaining in the fund that is refundable to the policyholder after deducting the surrender charges. Note that this amount is refundable after the end of the lock-in period.
4. Surrender Charges
At the time of policy lapsation, certain charges are applied to the fund value. These charges are deducted from the surrender value provided to the policyholder. The charges are calculated as a percentage of the fund value, as defined by the IRDAI, and vary according to the policy period and the year of the lapse. The charges during the lock-in period are the highest and decrease over time.
5. Revival Period
It is the period offered by the insurer to revive a lapsed ULIP policy. During this period, the policy is revived, provided the conditions specified by the insurer are fulfilled. Generally, insurers allow a policyholder to revive a policy within 3 to 5 years from the due date of the last unpaid premium.
What You Can Do If Your ULIP Policy Is Lapsed?
A policyholder has the following options if his ULIP policy is lapsed;
- Revive the policy
- Continue the policy with risk cover only
- Continue the policy with risk cover and part of the investment fund
- Withdraw completely from the fund without any risk cover
Every insurer defines a time limit to renew a life insurance policy. In case a policyholder fails to pay the premium within the time limit, the policy lapses. However, it is advisable to revive a lapsed policy and stay invested for the long term to gain maximum benefit from your investments.
How to Revive a Lapsed ULIP Policy?
If you want to revive a lapsed ULIP policy, follow the steps given below.
- Contact your insurer or Paybima for assistance in the revival process. The Paybima team will guide you through the process. Provide the policy details and reason for the lapse for faster processing.
- Review your ULIP policy’s terms and conditions to understand the conditions for revival.
- Pay overdue premiums with interest or any applicable penalty as the insurer specifies. Keep a record of all the payments made.
- Submit any document required by the insurer. These documents may include KYC documents, proof of payment and revival or reinstatement forms.
- After paying premiums and submitting all the documents, the insurer will review your case. If everything is as per the requirement, your request will be approved. Your policy will be revived and you will get a confirmation for the revival.
What is the Impact on the Returns of the Policy?
The insurance company issues a notice to the policyholder after the expiry of the grace period. In case the policyholder does not opt to revive the policy within 30 days of receiving the notice, the proceeds of the lapsed policy are refunded to the policyholder after the expiry of the revival period after deducting certain charges as explained below;
- If the policyholder continues the policy with risk cover only, the risk charges, along with the fund management charges, are recovered from the surrender value.
- If the policyholder continues the ULIP policy with risk cover and part of the fund, the fund value is adjusted as per the NAV.
- If the policyholder withdraws completely from the fund without any risk cover, the fund value is deposited to the ‘Lapsed Policy Fund’, which is invested in a fixed income instrument that earns interest at the savings deposit rate. The interest earned on the fund is added to the fund
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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