What is a Lapsed Life Insurance Policy?
A lapsed life insurance policy occurs when the policyholder fails to pay the premium within the stipulated grace period. This results in the policy losing its active status, meaning the insurance coverage is no longer in effect. A lapse can happen due to various reasons, including financial difficulties, oversight, or a lack of understanding of the policy’s terms.
Consequences of a Lapsed Policy
Once a life insurance policy lapses, the policyholder loses coverage, and beneficiaries will not receive any death benefit if the insured passes away. Additionally, many insurance companies do not reinstate lapsed policies without a thorough review process, which might include paying back premiums and completing a new health evaluation.
Reinstating a Lapsed Policy
Reinstating a lapsed policy generally requires the policyholder to request a reinstatement from the insurance company. The process may vary between insurers but typically involves submitting a reinstatement application, paying any missed premiums, and possibly proving insurability again. Some companies offer a grace period during which the policy can be revived without penalties.
Prevention Tips
To avoid a lapse, policyholders should set reminders for premium payments and review their financial situation regularly. Automatic payments can also be a useful tool to ensure premiums are paid on time, thus maintaining continuous coverage.