A Term Plan is the most reasonable form of financial protection for a definite period of time when it comes to life insurance. It guarantees a payout to the nominee in the event of the demise of the policyholder during the policy term. Affordability is one of the most distinctive features of such a plan along with several features including the Reinstatement Period. This article gives an overview of the Reinstatement Period in Term Insurance.
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Restoring something or someone to their previous status is known as reinstatement. Reinstatement of a policy means restoration of an insurance plan that had been previously cancelled or terminated. The reinstatement of a lapsed Term Plan may come with additional charges, interest, and outstanding premium amounts. This can vary according to the terms and conditions of the insurer.
Rahul's Rs. 1 crore term life insurance coverage may lapse in India if he fails to pay the premiums by the due date. Nonetheless, reinstatement is often possible under many policies, usually after two years. Rahul has to apply for reinstatement, pay any unpaid premiums plus interest (for example, Rs. 12,000 in premium plus Rs. 1,000 in interest), and be checked out medically.
If accepted, his coverage picks up where it left off, although claims made during that time may not be covered. Insurance companies in India may have different reinstatement conditions, including time frames, interest rates, and medical examinations.
Reinstatement of a lapsed Term Plan can take place within the revival period as stated in the policy document.
This is after the grace period given by the insurer. The Term Plan remains active during the grace period, but the policy becomes inactive after the grace period is over. This means no claim will be paid to the beneficiary if the policyholder dies. During this period called the revival period, the policyholder can contact the insurer and fill out the revival form.
After this, the outstanding amount towards the premiums plus the additional fee and applicable charges will have to be paid to reinstate the policy. The policy document contains all the information needed for the process. The insurance company can also be directly contacted for more information.
A Term Plan usually lapses due to a lack of premium payment. In an agreement between the insurer and the policyholder, the insurance company provides coverage and payout amount to the nominees in the event of the policyholder's untimely demise. For this, the policyholder needs to pay an amount towards a monthly or yearly premium as chosen at the time of the purchase of the policy.
If the policyholder is unable to pay the premium towards the plan under any circumstances, the insurer provides a term insurance grace period to clear the payments. If the policyholder is unable to make the payment even during the grace period, the policy may lapse. A lapsed policy does not provide coverage.
Death benefits are paid to the nominee if the policyholder passes away during the grace period. Some deductions may apply as stated by the insurer at the time of the inception of the policy.
The two ways to reinstate a lapsed policy are as follows.
This is the extra period the insurance company provides in case of non-payment of premium. During this period, the policyholder can pay the outstanding amount without any extra charges and enjoy the benefits of a Term Plan.
Beyond the grace period, the policy becomes inactive. During this time, the piled-up premiums are to be paid with additional interest and any late fees according to the conditions of the insurer.
Policyholders usually have two options to choose from. One can be reviving a lapsed policy, and the other can be buying a new plan. Comparatively, the first option has advantages. Here are some advantages of reviving a lapsed policy.
In case of reinstatement, the incontestability period will be counted from the original purchase date and not the revival date. On the other hand, when purchasing a new plan, the incontestability period starts from the conception of the policy.
An example to understand the overall importance of reinstatement of policy is as follows. Suppose Shiven bought a Term Plan in 2015 with a sum assured of Rs. 50 lakhs for a policy term of 15 years. He was asked to undergo a medical test at the time of the policy purchase. Based on all factors, his premium was calculated to be Rs 7,000 annually. He paid the premiums regularly until 2019.
He has been unable to pay premiums from 2019 to 2023. The policy has lapsed and offers no payout at the moment. He wants to revive the policy and is asked to pay the outstanding amount of four premiums, which is Rs. 28,000, and an additional fee of Rs. 15,000. He might have to undergo a medical examination again to prove that he is in good health after the lapsed period. Here, the key point to note is that the cost to buy a new policy will still be higher than the cost to reinstate a lapsed policy.
Some steps to avoid a policy lapse are as follows.
The process of reinstatement in a term plan typically involves these steps:
The policyholder has to send the insurance firm a formal request in writing for reinstatement.
All past-due premiums must be paid in addition to any interest or late fines.
The insurance provider could need fresh proof of insurability. This might be a property inspection for homeowners' insurance or a health screening for life or health insurance.
The policy is returned to its initial terms and conditions if the insurer grants the reinstatement.
Some points to remember regarding the Reinstatement Period in Term Insurance are as follows.
The act of reinstatement guarantees the policyholder's return of insurance coverage. It will not, however, cover any events or claims that happened when the insurance was inactive. Furthermore, restoring insurance can occasionally be more expensive than retaining it because of potential penalties for fresh insurability proofs and late fees or interest on past-due premiums.
For policyholders who unintentionally let their coverage lapse, reinstatement might benefit them. However, the ideal course of action is to maintain the policy's active status and pay insurance payments on schedule to guarantee ongoing coverage and prevent the inconvenience and possible expenses of reinstatement.
Here’s a list of common questions and answers related to the Reinstatement Period in Term Insurance.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.