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Why You Should Never Let Your Life Insurance Lapse

What is Life Insurance?

Life Insurance pays a lump sum of money and helps provide for your loved ones in the event, the unthinkable happens. It is specially designed to protect your family's interests and safeguard them from financial difficulties that you would have helped with if you were still around. You can't predict the future, but you can help protect yourself and your family against unforeseen circumstances.

Why shouldn’t you let your insurance policy lapse?

Life Insurance facilitates a simple way to look after those you care about if you’re no longer around. This will further ensure that your family continues to live the life you always planned together without the added strain that comes with the loss of income. That’s why having a life insurance is of paramount importance. The proceeds from a Life insurance pay-out can help provide you and your family with the financial comfort and freedom the policyholder intended you to have. You can use it to pay off expenses such as monthly bill payments and for taking care of your family’s day-to-day needs.

It is crucial to understand that a life insurance policy remains active as long as you pay your premiums regularly. However, if you stop paying your premium and your policy lapses, a life insurance policy ceases to be an active contract. This means that if anything unfortunate were to happen, the policyholder loses all its benefits. Moreover, If the policy is less than three years old, the premiums stand forfeited, resulting in a total loss for the policyholder (not applicable for market linked products).

Furthermore, a lapse also referred to as a “lapse in coverage”, can also hinder your chances of trying to get a new policy or if you’re attempting to get the lapsed policy reinstated. You could eventually end up paying a higher premium as well, as your age would have advanced since you last got the policy. As age and health go hand in hand, it's unheard of that your health gets better with age. Furthermore, if you have changed your profession, it could also definitely affect the premium pricing as some occupations are considered more high-risk than others.

The good news though is that a policy will only lapse once the ‘grace period’ expires. In case, you have missed paying your premium, most reputed life insurance companies such as Aviva for instance, will allow their clients an additional time period of up to 30 days for paying the premium without incurring any penalty. During the grace period, the policy will still continue to be in force. However, if the premium remains unpaid even at the end of this period, the policy goes into a state of lapse.

How to Get Your Lapsed Policy Reinstated?

Even after the grace period has passed, most companies give their clients an opportunity for reinstating the policy within two years from the date of first unpaid premium. This usually involves requesting for a reinstatement form and applying in writing to have the cover reinstated. Further, this might also involve filling up an application for Declaration of Good Health while providing your complete details along with relevant documents. You will also have to pay off all unpaid premiums and you may also have to pay a revival fee. Whether further underwriting is necessary depends on the amount of time since the policy lapsed.

Why is Life Insurance Necessary?

More often than not, most people who aren't in a position to revive the policy tend to pull out owing to ignorance or simply putting insurance on the back-burner. However, life is full of uncertainties and while the possibility of something untoward happening to you might not be a hot topic of discussion, most people realize only later when it’s too late what this ignorance costs them. If paying a lump sum at one go poses an issue, you can even opt to change the frequency to monthly or quarterly payments. The premium might go up slightly, but at least the situation becomes manageable. Life for the future and when planned properly can help keep your family protected in case of any eventualities. Paying life insurance premiums on time should therefore remain a top priority for all of us.

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