#Personal Finance | 12 MIN READ

Letting your life insurance policy lapse is a costly mistake

Life Insurance is a fundamental element of sound personal financial planning.

Why do we plan?

- We plan not only for finances but also because life is unpredictable. We need to live in the present while securing the future for ourselves and our loved ones.

- And that is why you purchase a life insurance plan in the first place. The intention is to keep your family members who depend on your earnings financially secure if, God forbid, something were to ever happen to you. If you let your life insurance policy lapse, you defeat the purpose you bought it for.

- Presented below are some key pointers on why you should diligently pay your premiums on time and not let your life insurance policy lapse:

- If your life insurance policy lapses, you put your loved ones at financial risk in case of your unfortunate absence. We can neither predict nor change life’s plans. But, we can make our plans to stay safe when life plays unfair. Losing a loved one involves much emotional stress, and financial hurdles can only worsen the situation. A life insurance policy helps the bereaved family handle living expenses and pay off any debts, loans, or EMIs comfortably.

- If you let your term plan lapse, you do not get any benefits. Endowment and ULIP plans come with a lock-in period. If your policy lapses within the lock-in period, all your premiums are forfeited and you get no benefits. If your policy lapses after the lock-in period, your benefits are reduced and paid only when due. In both cases, you lose your hard-earned money and the time and opportunity to reap returns on it.

- If you choose to revive your lapsed policy, it has to be done within the revival period specified by the insurer. You will have to put in extra time, effort and money to revive a lapsed policy. You will need to fill and sign forms and accept any new terms and conditions that may be applicable. You might also need to get medical tests done again and submit all documents that the insurer may require. Plus, you will have to pay upfront a total of all unpaid premiums, plus interest and revival charges as applicable.

- If you decide to go for a new policy, you will have to undergo the application procedure, complete with medical tests. Plus, you may have to pay a higher premium corresponding to your current age and health conditions.

- If you choose to surrender your policy, you can do so only after the lock-in period of the plan. On surrendering your policy, you receive a defined percentage of the premiums paid as the surrender value depending on the type of policy. Term plans have no surrender value, i.e., you don’t get anything if you choose to surrender your term plan. In the case of endowment plans, you pay a surrender charge and receive a defined percentage of either your premiums or the benefits, as decided by the insurer. In the case of ULIPs, if a surrender request is made in the first five years of the plan, your funds are moved to a ‘discontinued policy’ fund and its proceeds are paid after completion of the lock-in period. If the ULIP is surrendered after five years, a surrender charge is deducted and the remaining fund value as on the date of surrender is paid. A surrender makes a policy lose its efficacy and money-building momentum. You lose out on the long-term benefits of staying invested and reaping returns.

- Life insurance policies come with a grace period facility that is a time extension of 15 or 30 days from your premium due date to pay your renewal premium and keep your policy active. Also, regular reminders – through emails, WhatsApp, SMS and calls, keep pouring in from the insurers. If you are short on funds, you may request your insurer to extend the grace period as a one-off consideration. There have been cases where life insurers have entertained genuine requests to support their customers.

- Never invest in a life insurance plan on a whim and never give it up on a vagary. Take an informed decision regarding your financial investments and keep the patience to see them deliver results.