A Comprehensive Guide on How Can You Avoid Term Insurance Policy Lapse?


4 min read

Policy lapse is a key reason why many policyholders suffer insurance setbacks. Knowing what is policy lapse in term life insurance and how to prevent such lapse is important. So, read on to know more.

Term insurance plans allow the policyholder to avail of coverage at a low premium rate for an extended policy period. So, under this plan, the policyholder pays a regular premium amount to the insurer to receive a guaranteed sum in the event of the sudden demise of the policyholder during the policy tenure. Let us take a look at the policy lapse meaning and the various ways in which you can avoid a term insurance policy lapse.

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What Does a Policy Lapse mean in Term Insurance?

Policy lapse means when a policy becomes invalid. And if a policy becomes invalid, the policyholder is no more eligible to enjoy the benefits that the plan offers. Moreover, when a policy lapses, the policyholder cannot make a legal claim against it.

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What can be the cause of a Policy Lapse?

The primary reason for a policy to get lapsed is when the policyholder fails to pay the timely premium payment. However, the insurance company allows a grace period of over 30 days from the last date of premium payment during which the policyholder can make the payment and continue the policy. So, of you miss the last date of premium payment, it doesn’t become invalid at once. You can still make the payment during the grace period and keep the plan active to keep enjoying the benefits of the plan. However, if you miss the grace period offered by the insurer, your policy may lapse and become invalid.

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How Can a Term Insurance Policy Lapse be Avoided?

A policy lapse can be avoided by following certain measures that are listed below.

Timely Premium Payment – To avoid a situation when your term insurance policy might lapse, you must make the premium payment long before the due date. Rather than waiting till the last day of your premium payment, you should try to get the payment done long before the final date.

However, if you still miss the last date because of any reason, you must make sure not to exceed the grace period so that your policy keeps going.

You may also set a reminder in your calendar and keep a note of the due date so that you don’t miss it anyway. Also, premiums of term insurance are quite reasonable so try to keep a certain amount separately so that you make the payment smoothly.

Make Proper Estimate About Your Finances – Though term plans are generally low-priced policies that do not require the policyholder to pay a lump sum amount. Hence, the point of not making the payment due to lack of money may not arise. However, it is better to choose a policy that is within your budget so that you are not pressurised due to lack of finance. Hence, it is extremely important to buy the correct policy and consider your liabilities before investing in any policy.

Consider the Automatic Pay System – For people who are forgetful and tend to forget the dates of payments, it is better to buy a policy via online mode. In that case, you can set an auto cut billing system for your term plan premium payment. So, this way the money will be automatically deducted from your account the next time when there is an impending premium payment date.

Consider Insurance within Your Budget – If you know that you are liable to pay premium for your term insurance plan, you should accordingly plan your finances and budget it in a way to incorporate the term insurance premium payment.

Restoring the Policy – Despite all the above efforts, if your policy still lapses, you can apply for reinstatement of lapsed life insurance policy after 2 to 5 years of the lapse by repaying the premium amounts and by submitting a declaration of stability of your health and occupation. There may also be a penalty levied on the missed premiums that you might have to pay for a lapsed policy revival.

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To Sum Up

It is better to avoid a policy lapse by paying premium on time and being careful about the dates of payment. This is because once a policy lapses, it is upon the discretion of the insurer to decide whether to allow the policyholder to reinstate the policy or not. Hence, it is good to keep it active by setting up an auto-billing system to avoid a lapse.

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FAQs: How Can You Avoid Term Insurance Policy Lapse?

How do you avoid policy lapse?

The best way to avoid a lapse in policy is to make the premium payment on time. You should ensure that you deposit all the premiums regularly or you may buy a single premium policy where you need to pay only one payment for the entire policy term.

What if my term plan lapsed?

If your term plan lapsed you can revive it at any time within 5 years from the date of first unpaid premium. For revival of a lapsed term plan, you will have to make the payment of the accumulated unpaid premium as well as the interest. You may also pay a certain percentage of penalty on the unpaid premiums depending on the policy and the insurer. 

Is policy lapse same as surrender?

No, the two terms have different meanings. Policy lapse refers to policy termination where the insured do not get any payout from the insurance company. On the other hand, surrendering a policy means where the policyholder gets a surrender value from the insurer.

Can a policyholder get a lapsed policy refund from a lapsed life insurance policy?

No, the insurer will not refund premiums unless it is a ‘return of premium’ plan and the lapsed policy is revived by paying for the accumulated unpaid premiums with interest. 

What is the grace period for life insurance policy?

The grace period is the time offered to the policyholder to make a payment of premium after its due date. By paying the premium amount during the grace period of 30 days, you can revive the life insurance policy back again.

How to revive lapsed LIC policy online?

LIC lapsed policy details can be revived within a period of 6 months to 3 years from the last premium payment due date. The policyholder may submit a written application for reviving the policy.

When is a policy deemed to be lapsed?

Policies are deemed to be lapsed when no premium is paid for renewal either on the due date or within the grace period of the policy.

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Feb 22, 2023
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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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