Taking Cover: Reviving life insurance policies

A life insurance cover yields the intended benefits only when the premium is paid regularly. If the premium dues are left unpaid over a long period of time, the policy may lapse and lose all or part of its benefits. Thus it helps to revive a policy even though you may have forgotten to pay the premiums on or before the due date. Here’s what you should know about revival.

The premium for a life insurance policy is to be paid on a monthly, quarterly, half-yearly or yearly basis regularly each year. However, if an individual defaults on premium payment, a grace period is allowed without any penalty or additional charges.

The grace period would be 15 days if your premium payment schedule is on a monthly basis and in other cases (quarterly, half-yearly and annual) the grace period is 30 days. This is common to all the insurance companies.

Beyond the grace period, if your premium is unpaid, interest (penalty) is chargeable as a late fee (from the due date) along with the amount due. This interest usually varies with insurance players. For instance, Max Life charges 8 per cent per annum interest for 60-180 days of delay and 9.9 per cent per annum beyond six months. LIC charges interest of 9.5 per cent per annum. The maximum time limit allowed for reviving a policy is two years (previously it varied between three and five years) and it is common to all insurance companies.

Thus, if you want to revive your policy, you have to pay all your dues within a period of two years. According to V Viswanand, Senior Director & COO at Max Life Insurance, “People who revive policy after six months and within the period of two years might have to undergo medical examination due to the policyholder’s age or development of any illness. Accordingly the premium amount could change. However, the same policy benefits will continue.”

It is hence at the discretion of the insurer to revive the policy or reject it (although the rejection is rare). Once the policy is revived, the benefits from the policies are also reinstated.

If the revival doesn’t happen within two years, the policy either lapses or benefits get reduced. It would continue in this status until maturity or death of the policyholder.

Santosh Agarwal, Head of Life Insurance, Policybazaar, notes that if it’s a term insurance policy, the contract is not valid beyond the grace period. A policyholder would get no benefits in the case of death. For investment policies, the surrender value (if the policy has acquired one) would be paid back. In most cases, the insured must have paid the premium for a minimum 2-3 years for the policy to acquire surrender value.

“It is better to pay the premium regularly to renew the policy than reviving it later on. At renewal stage, the customer is required to pay the same premium and no further underwriting is done. But at the time of revival, company may levy an interest for the late payment. More importantly, once the customer fails to renew the policy on time and till the date he/she revives the policy, there is no insurance cover on the life of the customer,” says Subhrajit Mukhopadhyay, Chief and appointed actuary, Edelweiss Tokio Life.

Insurance companies will help you in reviving your policies. Usually, a premium reminder is sent through mail or messages or both. You can also find out about your revival premium amount by sending a text message to the number provided by the insurance company or call its customer care or mail them.

Sometimes, insurers also provide a special window to policy holder for revival. For instance, LIC conducts revival campaigns where the penalty for late premium payments will be discounted.

Similarly, Max Life conducts auto reinstatement for select policyholders based on their profile (creditworthiness, timely payment of premiums, etc), provided the person is less than 45 years of age, the policy is for a sum less than ₹50 lakh and the revival is within one year.

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