Aditya Birla Sun Life Insurance Company Limited

Policy Lapse

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Definition of Lapse

In the context of insurance, the term "lapse" refers to the termination or expiration of an insurance policy due to non-payment of premiums within the specified timeframe. When a policy lapses, it means that the policyholder has failed to make the required premium payments within the due date and any applicable grace period.

Causes of Policy Lapse

There are several reasons why an insurance policy may lapse:

Non-payment of Premium :

The most common cause of policy lapse is the failure to pay the premium amount within the stipulated time frame. If the policyholder does not make the payment on or before the due date and does not avail of any grace period provided by the insurer, the policy will lapse.

Exhaustion of Grace Period :

Insurance companies often offer a grace period, which is a specific duration after the premium due date during which the policyholder can still make the payment without incurring a lapse. If the premium remains unpaid even during the grace period, the policy will lapse.

Automatic Deductions :

Some policies are set up for automatic premium deductions from the policyholder's bank account. If there are insufficient funds or if the account details change without updating the insurer, the premiums may not be paid, resulting in a lapse.

Incorrect Contact Information :

If the insurer is unable to reach the policyholder due to incorrect contact information, such as a change in address or phone number, it can lead to non-payment of premiums and policy lapse.

Policy Surrender :

In some cases, policyholders may intentionally surrender their insurance policies, requesting termination of coverage and the surrender value of the policy. Surrendering a policy voluntarily will result in its lapse.

Consequences of Policy Lapse

When an insurance policy lapses, certain consequences follow:

Termination of Coverage :

The primary consequence of policy lapse is the termination of insurance coverage. Once a policy lapse occurs, the policyholder no longer enjoys the benefits and protection provided by the policy.

Loss of Premiums Paid :

In most cases, the premiums paid towards the lapsed policy are non-refundable. This means that the policyholder will not receive any refund for the premiums already paid.

Reinstatement Challenges :

Reinstating a lapsed policy can be challenging. Depending on the insurer's rules and policies, reinstatement may involve additional requirements, such as paying outstanding premiums, interest, and penalties, along with potential health assessments or underwriting reviews.

Loss of Policy Benefits :

Lapsed policies lose all the benefits, riders, and features associated with insurance coverage. This can lead to a loss of financial protection, potential surrender value, and other advantages offered by the policy.

Preventing Policy Lapse

To avoid policy lapse and its consequences, policyholders can take the following measures:

Timely Premium Payments :

Ensure that premium payments are made promptly and within the specified due date to prevent a policy lapse.

Set Up Automatic Payments :

Consider setting up automatic premium deductions from a bank account to ensure timely payments and minimise the risk of non-payment.

Keep Contact Information Updated :

Inform the insurer about any changes in contact information, such as an address, phone number, or email, to ensure effective communication and receipt of premium notices.

Regular Policy Review :

Periodically review the policy details, coverage, and premium payment schedule to stay informed and prevent an inadvertent policy lapse.

Seek Professional Advice :

Consult with insurance professionals or financial advisors who can provide guidance on policy management, premium payments, and strategies to prevent a policy lapse.