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Don't give up on your Lapsed Insurance Policy: Know other options

A lapsed policy refers to an insurance policy that has terminated or expired due to non-payment of premiums within the specified grace period. When policyholders fail to pay their premiums on time, the insurance coverage becomes inactive, resulting in a lapsed insurance policy. As a result, the policyholder no longer enjoys the benefits and protection provided by the insurance policy.

Policyholders often face challenges when their insurance policy lapses and they may be unaware of the options available to them. Also, they may be curious about whether an insurance company is liable to pay interest on previously paid premiums for a lapsed insurance policy, when settling the policy as a paid-up policy. Read this blog to know in detail. 

Life Insurance Corporation of India & Another v/s Smt. S. Sindhu

The case involves a dispute between the appellant, Life Insurance Corporation of India (LIC), and the respondent regarding the payment of the assured sum and bonus under a lapsed insurance policy.

In this case, a ‘money back policy’ was issued to K. Thankachan for a 20-year period, with regular quarterly premiums required for the policy to remain in force for an assured sum of Rs. 5 lakhs. Thankachan paid premiums until June 4, 1994, but failed to continue payments thereafter, resulting in the lapsed policy. He later revived the policy by paying the premium with interest, but it lapsed again in March 1997 due to non-payment. Thankachan passed away on December 5, 1997, and his widow/nominee made a claim for the policy amount.

Accordingly, the respondent(his widow/nominee)received the ‘paid up value’ of Rs. 1,13,750/- from the LIC. However, she approached the Consumer Disputes Redressal Forum, Kollam and sought a direction for the LIC to pay the entire sum assured of Rs. 5 lakhs, along with accrued bonus and interest at 12% per annum. Additionally, she claimed Rs. 25,000/- as compensation for the deficiency of service and Rs. 5,000/- as costs. 

The LIC argued that it had already released the paid-up value of Rs. 1,13,750/- as per the policy’s terms and had no further liability. The District Forum rejected the respondent’s claim for the assured sum and bonus, but directed the LIC to pay interest at 15% per annum on the paid-up value. The LIC appealed the decision, contending that it was not obligated to pay interest from the date of premium payment. 

However, the Kerala State Consumer Disputes Redressal Commission partially allowed the appeal, reducing the interest rate to 12% per annum. 

As per the policy’s conditions, the reduced sum payable becomes due only upon the death of the assured, and no interest is payable from the premium payment dates to the settlement of the claim. In this case, the District Forum, State Commission, and National Commission made an erroneous decision by awarding such interest.

What other options are available to policyholders? 

If you have a lapsed insurance policy, you can either reinstate the policy or convert it to a paid-up policy. 

To reinstate a lapsed insurance policy, you can start by applying to the insurance company for its revival. The process usually involves paying the missed premium amounts along with any applicable penalties imposed by the insurance company.

In the case of health insurance, additional steps may be required, such as providing a declaration of your current health status or undergoing a health checkup. It’s essential to carefully follow the instructions provided by the insurance company and submit the necessary documents to reinstate the policy.

Another option for policyholders with a lapsed insurance policy is to convert it to a paid-up policy. This means that you do not need to pay the outstanding missed premiums. Instead, you will receive benefits for the coverage plan based on the premiums already paid. In case of the policyholder’s death, the death claim will be paid based on the reduced sum. This option allows policyholders to maintain some level of coverage without the need to continue paying premiums.

Conclusion  When dealing with a lapsed insurance policy, it is highly recommended to seek advice from subject matter experts. Consulting with insurance professionals will help you understand the available options and make decisions based on your specific circumstances.