Lapsed life insurance explained: What happens and how to restore your cover

Learn how grace periods, reduced paid-up options and revival rules work

Life insurance is meant to provide long-term financial security to families, but the protection can vanish if premiums are not paid on time. Busy schedules, cash-flow constraints, outdated contact details or the assumption that policies renew automatically are common reasons for missed payments.

 

Sabyasachi Sarkar, managing director and chief executive officer of Go Digit Life Insurance, says such lapses can leave families unprotected when they need cover the most.

 

What is a lapsed policy?

 

A life insurance policy is considered lapsed when the premium is not paid within the insurer’s grace period. Sarkar explains that most insurers allow a grace period of 15 days for monthly premiums and 30 days for quarterly, half-yearly or annual payments. If the premium remains unpaid beyond this period, the policy lapses and the coverage terminates.

 

 

Once a policy lapses, claims made during the lapse period are rejected. “In simple terms, the financial protection promised under the policy no longer exists,” Sarkar says, adding that lapses can also reduce the long-term value originally expected from the policy.

 

What happens when a policy lapses?

 

The impact of a lapse depends on the type of life insurance product, Sarkar explains:

 

·  Term insurance: Pure term plans generally do not offer any surrender value. If such a policy lapses, the cover is lost. Some term policies may return a small unexpired risk premium if the policyholder terminates the policy while it is lapsed.

 

·  Traditional savings plans: For endowment or whole life policies, a lapse may not mean a complete loss. If the minimum number of premiums has been paid, the policy may convert into a reduced paid-up policy. Under this, no further premiums are required, but the sum assured is reduced proportionately. Bonuses stop accruing, yet a reduced benefit remains payable on death or maturity.

 

·  ULIPs: In unit-linked plans, the fund value remains intact after a lapse, but fund management charges continue to be deducted. No new allocations or top-ups are allowed, and withdrawals depend on the policy terms.

 

Can a lapsed policy be revived?

 

Most insurers allow revival within a specified period, typically up to three years for ULIPs and up to five years for traditional policies from the lapse date. Sarkar says revival generally requires payment of all outstanding premiums along with interest, and sometimes a fresh medical check-up.

 

He adds that insurers often run special revival campaigns where interest or late fees are partially waived. “This makes reinstatement easier and more affordable than buying a new policy,” Sarkar says.

 

Why staying active matters?

 

A lapsed policy can disrupt long-term financial planning and leave families exposed. Regular premium payments, updated contact details and periodic policy reviews can help ensure uninterrupted protection and peace of mind, Sarkar concludes.