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The lapse rate in small ticket-size policies and unit-linked insurance plans (Ulips) is a good 10 to 15% higher than it is in traditional policies, say experts. Temporary financial crunch, premiums becoming unaffordable, losing faith in the product or other financial commitments could be a few reasons why your life policy may have lapsed.
Still, a lapsed policy is the last thing an informed individual should have on his financial statements. While traditional and Ulips lapse at different stages, the procedure to revive them is the same.
Most insurance companies come out with ‘special revival campaigns’ during which they waive off the requirement of medical tests, documents, offer discounts on the interest (as penalty) and even relax certain underwriting norms.
Currently, Reliance Life Insurance is running this campaign where they are allowing their policyholders to revive lapsed policies without charging them any penalty. This campaign will end on September 30 of this year.
To revive such policies, one has to pay the previous premiums, plus interest on the premium due which is usually 9-12% depending on the insurer. In addition, you have to undergo medical tests and even re-submit all documents for identity proof.
One should take advantage of such schemes as it’s the best time to revive lapsed polices.
If premium payment is not made towards a paid-up traditional policy for at least two years, then it lapses. Whereas, for Ulips, if the premium is not paid in the grace period, then the money accumulated goes into the discontinued fund.
Besides high interest payable on the premium which was due, you can use this opportunity even if you have developed some medical condition in the past years. Reason: At a higher age, starting a new policy would attract additional premium, which you may not have to pay in case you revive your older policy.
Additionally, if a Ulip is being revived, it will save you the efforts of starting your investments afresh. Also, some insurance companies allow you to use money from the fund value in order to make the payment for the premium towards its revival. Ideally, allow the accumulated money in the fund to grow instead of using it to make premium payment.
While all this will require some of your time and efforts, make sure you renew only those policies that are worth the revival.
