Often individuals take an insurance policy and find themselves in a situation where the policy is about to lapse due to non-payment of the premium amount. This will eventually lead to the insurance cover being lost and their entire financial planning process getting out of control.
How a policy works
The term lapsed policy is very significant and one has to understand what this actually means. It refers to a situation where the insurance cover is not available to an individual as he has not paid the premium for the policy within the time limit that is given. The requirement of an insurance policy is that the premium has to be paid regularly depending on the terms and conditions. There is also some time limit after the due date within which the premium can be paid and the policy will continue. However, if this is not done, the policy will lapse. Life insurance companies also have specific provisions whereby a lapsed policy can be revived within a given time limit.
This situation is faced by many policy holders as they are unable to pay the premium on time. There are many reasons why this happens and one of the most common reasons is that the policy holder does not remember that the premium has to be paid. This leads to the due date being missed and the policy getting lapsed. There are also cases where the financial situation is such that the individual is unable to pay the premium and thus the policy will lapse.
A policy holder has to make all the possible efforts to see that the policy continues as there is a big loss to him or her when the policy lapses.
Unless there are specific conditions or terms in the policy that cover this kind of a situation of not paying the premium in normal course, the benefits of the policy will no longer be available for the holder and he will have lesser or no benefit coming from the policy.
Due to this one has to be very alert and all efforts have to be made to ensure that the situation does not end up with the policy lapsing.
For most of the policy holders complex planning is not needed. Simple records and details are required to be kept so that the policy holder knows the time period for making the payment. Adequate follow-up also has to be done so that the terms and conditions will continue over the life of the policy. This will ensure that the entitled benefits are received.
(The writer is a Certified Financial Planner)