How to revive a lapsed insurance policy

Some of us like our life laid back! That is fine if you are someone who is slow but steady in this fast paced era. However, if you add a heavy dose of procrastination to the mix, it could be lethal to your own best interests. Let us consider what happens to someone just like this who forgot to pay up his insurance premium after procrastinating on the dates for a while. Thankfully for him there were loopholes to make amends. Read on to figure how!

Ajay, 32, has been going through an old bunch of documents, and comes across an insurance policy he had taken when he was 28, but had completely forgotten about. The first (and only) annual premium paid was Rs 8,000, and he's now feeling bad that the money paid has gone down the drain. Or, has it?

Grace period

Generally, there is a grace period for paying your...insurance premiums - a period of one month. During this period, the policy remains valid. However, beyond one month, the policy lapses, and no claims will be entertained by the insurance company.

Revive an old policy

In Ajay's case, the policy ceased to be in force for three years, so he is not within the grace period. Yet, he can still revive his policy, since an insurace policy can be revived within five years from the date of the last unpaid premium. What Ajay needs to do is contact the insurance company, submit a declaration of health from a doctor recognised by the company, and pay the unpaid premiums along with a late payment penalty.

Benefits

What benefit would Ajay get out of reviving an old policy? For one, he would get the benefit of having to pay regular premiums calculated when he was 28 - which would be less than the premium...for a similar, new policy taken at the age of 32. He will enjoy all the benefits and guraranteed returns of the policy as was promised to him four years ago. Also, he benefits from tax deduction under Section 80C for the entire payment made towards arrears in premium payment, not counting the penalty.

On the other hand, if Ajay decides not to revive the policy, he would lose the money he has paid as premium. If Ajay had paid his premiums for three years before discontinuing the policy, he would still have received the amount paid as premium along with pro-rata accrued bonuses at the end of the policy term.