The past four years of Covid have been a stark reminder of how life can be unpredictable. The global pandemic has underscored the importance of securing our loved ones’ futures financially. In this new reality, many are re-evaluating their life insurance needs.
By now you must have understood that life or term insurance is essential for safeguarding your family’s financial future. You may have a policy in place, but it is possible that you inadvertently missed a premium payment for some reason, causing the insurance coverage to lapse. This begs the question: if your term policy lapsed, should you revive it or opt for a new one? This decision depends on several factors, and we’ll explore both options to help you choose the best path for your situation.
The good news is that you have the opportunity to reinstate the lapsed coverage. Nonetheless, in the end, you need to understand what works best for you: renewing your lapsed coverage or purchasing a new one entirely. Let’s go over this in depth.
When does a policy lapse?
The benefits of the term insurance plan are available to nominees of the policyholder as long as the payments are paid on time and the policy is active. If a policyholder fails to pay the premium by the due date, he or she may do so during a 15-30-day grace period. If the premium is not paid even within the grace period, the policy will lapse.
How to Revive a Policy?
The policy can be reinstated within five years of the final date of its initial unpaid premium. To reinstate a lapsed coverage of 1 crore term insurance, pay the accumulated unpaid premiums plus interest and taxes. Depending on the policy terms and conditions, the policyholder may be required to pay a penalty and revival costs. If the policy has lapsed for more than six months, the policyholder may be required to undergo medical testing.
Should you revive a lapsed policy or purchase a new one?
It is possible that a policyholder was unable or failed to pay the term insurance premium, leading the policy to lapse. He or she may subsequently realize the need to have life insurance again. In such cases, the policyholder has two options: renew the previous term insurance policy or purchase a new one for 1 crore term insurance. Many people face this issue, and there is no answer as the decision differs from case to case.
Reviving a lapsed policy incurs additional fees in addition to the unpaid premium, which must be considered while making a decision. On the other side, purchasing a new policy would result in a higher premium because you purchased your now-lapsed term insurance when you were younger, and with years passing, the current premium is likely to be higher.
If you purchased 1 crore term insurance a long time ago and your policy recently lapsed, it is more cost-effective to renew the policy since the premium difference between the lapsed policy and a new one would be too wide. In rare circumstances, some insurers offer to waive interest and penalty payments in order to renew a policy. If it happens, it is an excellent opportunity to reinstate the old policy.
If the old insurance was purchased recently and only a few premiums were paid, it may be more cost-effective to get a new one because the expense of renewing it may outweigh the benefits of keeping it.
Consider buying a new policy with better features
If a policyholder is dissatisfied with the coverage provided by a lapsed policy, which could be owing to a low sum assured or a lack of riders, he or she may consider purchasing a new one of 1 crore term insurance. It would make more sense to expand the coverage to meet your changing needs. Most insurance companies are constantly coming out with new features to cater to the consumer-centric term insurance market. If you were unable to select an invaluable benefit that is currently available when purchasing a new policy but wasn’t available when you purchased the old policy, you should certainly buy a new policy. For example, some policies now provide an exit option, which allows you to cancel your policy and receive a refund of any premiums paid up to that point for the base cover. Some policies additionally include a benefit that states that if the policyholder dies, a life cover will begin in his or her spouse’s name for half the policyholder’s life cover, with the nominee receiving the sum assured. Such aspects must be considered while deciding whether to renew a lapsed policy or acquire a new one.
At last,
Finally, the decision between renewing an old term insurance and purchasing a new one of 1 crore term insurance will be based on individual circumstances. The best solution is always to keep your coverage active and pay the premiums on time. If your term insurance lapses for any reason, you should get it as quickly as possible, regardless of whether you decide to renew your existing policy or get a new one.
