Things to Know About Reviving a Lapsed Term Insurance

When a life insurance policy provides insurance coverage for a person for a duration of time or pre-defined term of years, it is called term insurance. In the event of the demise of the insured during this term, their nominee is eligible to receive the death benefit. Cost-wise, when compared to permanent life insurance, term insurance is less expensive. Also, unlike accumulating cash benefits attached to a permanent life insurance product, a term insurance product may not have a cash value. The only value that is guaranteed out of it is the death benefit.

Even term insurance can have various types. Term insurance policies can be of the duration of 20 years or 30 years. The premium of the insurance policy is calculated based on life expectancy, age, medical report, health records, etc. Only fixed premiums are levied and are paid throughout the life of the term insurance policy.

Why Revive a Lapsed Term Insurance Policy?

A term insurance policy lapse happens when one fails to pay premiums. As a result, the insurance policy contract lapses. The insurer is not liable to pay the death benefit in the event of the death of the insured. Insurers offer grace periods of 15 days for monthly payments or 30 days for yearly payments. The revival of a lapsed term insurance is dependent on the duration of inactivity of the insurance policy. If the term insurance policy was active for three years, then the insured gets two years to revive the policy.

If the policy is revived with six months of lapse, the insured is liable to pay the premiums that were overdue along with penalty charges. There could be an interest payment required as well – in the range of 12% to 18% of the value of the premium.

List of Term Insurance Plans

Term insurance plans cover uncertainties such as death, disease, etc. In India, there are many companies that offer online term insurance plans and policies.

Best Term Insurance Plans

When choosing the best term insurance plan, a significant consideration is the claim settlement ratio. Best plans have percentages in the range of 98-99 percent. It has to be noted that when making a claim, it is the responsibility of the insured to disclose all their details accurately. This would avoid any situation of claim rejection. In case the insured feels that the claim was rejected in error, they can approach the ombudsman. He/She has the authority to check the claim details and provide a ruling that could be in favour of the insured or the insurer, depending on the accuracy of the claim.

How to Apply for the Term Insurance Plan?

Presently, most term insurance plans are bought online. The following is the general process:

• Logon to the website of PaisaWiki
• Enter the sum assured amount
• Choose the term insurance policy duration
• Choose the term for paying premium – monthly, quarterly, yearly
• Select the bank from which premium is deducted
• An acknowledgment message is displayed

The process may involve uploading documents pertaining to age, medical conditions, identify proof, etc.

Features and Benefits of the Term Insurance Plan

The following are the salient features and core benefits of the term insurance plans:

• Affordable – A pure term plan only covers life. The amount and premium are fixed
• Easy purchase process – The term plan can be bought easily. It’s just like buying another insurance product
• Return on premium – Most term insurance plans have no returns on the premium paid. There is a variant of a term plan that offers a return on premium upon the plan’s maturity. Such term insurance plans are slightly more expensive than the common term insurance policies
• Staggered payments – Sometimes, a huge corpus of money on the death of a person that is delivered to the nominee might pose a risk. The money could be poorly managed. To prevent this, there is an option to provide the corpus of money in a phased manner
• Flexible payment – Term insurance plans offer flexible payment options of monthly, quarterly, semi-annually, or annually
• Rebate – Some life insurance companies offer rebates for term insurance plans with higher sum insured. There are congenial plans for non-smokers and women, too – they can get discounted premiums

Comparison with Other Plans

If term insurance has to be compared, it can only be compared to life insurance:

• Death benefit – This is an essential difference. Term insurance provides death benefits upon the death of the insured. But life insurance offers death benefit amount and maturity value amount as well
• Risks covered over savings – Term insurance only covers the risk of death of the insured. Its premiums are, therefore, lower in cost than life insurance. So if the objective of the insured is to cover only life, then term insurance is the best
• Flexibility – Surrendering a life insurance plan is more cumbersome. In life insurance, the maturity benefit is provided only if the insured completely pays all premiums up to policy maturity
• Tax benefit – Term insurance premiums are eligible to be covered under tax benefits

Things to consider while buying the Term Insurance Plan

Select the right insurance company – Check the company’s claim settlement ratio, solvency ratio, market reputation, financial standing, etc.

• Payout option – Some common payout options are lump sum payout on death or monthly income with life cover. The payout could be 148% of the assured amount if it is a lump sum amount. In the case of monthly income, it is generally about 0.4% of the assured amount paid over a period, such as ten years
• Policy period – A person in their 50s may need coverage for 10 – 15 years, whereas a person in their 20s may need coverage for 40 years
• Cover amount – This is identified based on age, financial obligations, basic expenses, current loans, etc.