Discover a clear glossary of insurance terms, including cash value, pre-existing condition, premium holiday, and more.
A lapsed insurance policy is a condition in which the insured no longer receives insurance protection benefits, usually due to non-payment of premiums or exceeding the grace period stated in the policy. To avoid this issue, make sure to pay premiums on time, use an auto-debit feature, and understand the policy’s grace period terms.
Let’s take a closer look at the meaning, causes, risks, and how to reactivate a lapsed policy.
A lapsed policy refers to an insurance policy that becomes inactive or loses its protection benefits because the policyholder failed to pay premiums within the allowed time frame, including after the grace period. Once a policy lapses, the policyholder can no longer file claims or receive benefits under the insurance.
A lapsed policy can occur for several reasons beyond just missed payments. Here are the common causes:
The most common cause is failing to pay premiums on time—even after the grace period provided by the insurer. When the payment is not made, the policy automatically lapses and coverage ends.
For policyholders using an auto-debit payment system, a policy may lapse if the linked account or credit card has insufficient funds. Therefore, ensure your account has enough balance, especially near the premium due date.
In some cases, a lapse occurs due to administrative issues, such as failure to update auto-debit account details or a change of address that causes missed payment reminders. Always update your insurer with any relevant changes to avoid such issues.
In unit-linked insurance, the policy may lapse if the investment value used to pay the premium is insufficient and the policyholder does not top up additional funds.
When your policy lapses, you lose your insurance protection and may face additional consequences:
Once a policy lapses, it no longer provides protection. If an accident, illness, or unforeseen event occurs, the policyholder cannot file a claim and must cover the costs out of pocket.
If reinstatement is not possible, the policyholder must purchase a new policy—which could be more expensive, especially if the policyholder is older or has developed new health conditions.
Some insurers allow policy reinstatement, but with conditions. The policyholder may need to pay overdue premiums, undergo a new health evaluation, or risk rejection if deemed high risk.
Reinstating a policy may involve extra charges or penalties due to the delay, adding an unexpected financial burden.
For unit-linked policyholders, a lapse can result in the loss of accumulated investment value. If the cash value is insufficient to cover insurance costs, a lapse may lead to significant financial loss.
A new policy after a lapse may not have the same benefits or terms as the previous one. Some added features may no longer be available, or coverage terms and claim requirements might change.
If your policy has lapsed, you may still be able to reactivate it through a reinstatement process, depending on the insurer’s policies. Here are general steps:
Reinstating a lapsed policy is an important step to ensure continuous insurance protection. By understanding the reinstatement process and consistently paying your premiums on time, you can avoid the risk of losing insurance benefits. To prevent policy lapses in the future, consider using auto-debit features or setting up regular payment reminders.
For more tips on insurance and how to manage your policy wisely, visit Roojai and explore helpful guides on choosing the right protection for your needs.