What is a Policy Lapse?

There may be many occasions during the term of your life assurance policy when you experience a policy lapse. This is when you have not been able to make your regular premium payments for a period of time. This is generally a situation you will want to avoid in order to ensure the safety of your policy. However, sometimes a policy lapse is just unavoidable.

There are many reasons why you might lapse on your life assurance payments. You may find yourself in unexpected financial straits and have other bills or payments which seem more important to cover that month. You may become ill and as a result become unable to make your payment transactions as usual. Or sometimes a policy lapse may simply be due to forgetfulness or laziness. Whatever the reason behind a policy lapse, it can have dire consequences.

Ultimately, once you experience a policy lapse, your life assurance policy is over. By not honouring your financial agreement, your policy becomes void and an insurer is no longer obligated to pay out on your policy if anything happens to you after it has lapsed. This may have negative consequences for your loved ones if you die once you have lapsed on your policy as they will receive none of the money which you had previously invested in your life assurance policy.

Delayed Premium Payments

But there is no need to panic if you have missed a payment. There is a difference between a policy lapse and a delayed premium payment. Most insurance companies will allow you a period of time in which to fulfil your payment obligations before they decide that your policy has lapsed. You will usually receive a letter from your insurer reminding you that you need to pay your premium that month. In this letter, the insurance company will detail how long you have to make your payment. This is usually a period of between two weeks and one month.

However, if you cannot make your payment after the reminder letter and the grace period specified within it, your policy will lapse. You will receive another letter from your insurer to inform you of the state of your policy. This will be an official confirmation that your policy has indeed lapsed.

The good news is that most assurance policies can be revived. However, an insurance company is likely to place certain restrictions on you in order for you to get your policy back after lapsing in your payments. You will probably have to pay all the overdue payments complete with interest upon them if you want to revive your policy. If the policy has been allowed to lapse for a long period of time, like six months, you may also have to pay a penalty fee.

You may be asked to have another medical exam in order to get your policy revived, just in case you have developed a new health condition since your original assurance was taken out. The insurer will be on the lookout for any reason that your risk might have increased and your rates may rise accordingly if any new heath issues are found. However, once your policy has been successfully revived, your loved ones should be on course to receive the same benefits as they would have received with your original policy.

Be aware that your insurer may decline to revive your application at all once it has lapsed. If you seek a new insurer, they may look negatively upon any past policy lapses and charge you a high premium. However, a few insurers do not ask any questions about previous policies.

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