Tuesday, April 23, 2019

What to do if your Life Insurance Policy has Lapsed

All insurance policies, including life insurance ones, are contracts between an insurance company and the person buying the policy. Being a contract, there are actions that both parties are obligated to take. The insurance company will pay the money due under the policy, if a claim meets the requirements of the policy.

The policyholder is obligated to make regular payments, as defined in the policy. If payments are not made, the policyholder has not met his obligations and that in turn releases the insurance company from its commitment to pay if a claim is filed. This is known as a ‘lapse in coverage’. If this happens, the policy will have to be revived to enable again the protection the policy provides.

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The grace period

All States in the country require insurance companies to provide for what is called a ‘grace period’, if the premium is not paid on time. This is to help prevent lifeinsurance policies from lapsing every time there is a few days’ delay in paying the premiums.

This period is normally 30 days and the delayed payment will be accepted without the need for further underwriting. If the policyholder dies during this time, the coverage remains intact. When the grace period is over without payment of premiums, things get complicated.

Reviving a policy

Once the grace period is over, reviving a policy is not easy. Underwriting is usually required. If the period of the lapse is between one to six months, limited underwriting is usually enough. This is normally restricted to answering a few basic health questions and attesting that there have been no significant changes in the policyholder’s health from the time the policy was first underwritten.

If the lapse is beyond six months, things are much more complicated; complete underwriting procedure has to be carried out as when the policy was first taken. An important point to be noted is that the claim is very likely to be rejected, if the company discovers any false information in the claim during the limited or full underwriting process.

Why not take a new policy?

A frequently asked question is why not take a new policy if the old one has lapsed for so long that complete underwriting is required to revive it.  The answer is simple: even if the policyholder’s health is the same as it was when the lapsed policy was taken, the premium on the new one will be higher. This is because it will be based on the age at which the policy is issued. This will obviously be more for a new policy.

Get professional help

The specifics of reviving a lapsed life insurance policy will vary from one insurance company to another. The best course of action, in the case of a lapsed policy, is to contact your insurance broker for guidance. They will be able to help you revive the policy in the quickest, simplest and most cost-effective manner you can ask for.

How to File a Life Insurance Claim?

If you are the beneficiary of a life insurance policy, it means that the policyholder cared enough about you; you are now left with financial resources to help you overcome the obstacles that life will present. The policyholder wanted you to have this money, and there is no reason to feel guilty about claiming it. There is also no reason to feel stressed about filing the claim. It is typically a simple process and can be easily completed.

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Filing a life insurance claim

This involves a four-step process:

1. Contact your insurance agent. Even if this is not the person who sold the life insurance policy, he does know the procedure. He can give you competent guidance, and answer any questions you may have.

2. Get a copy of the death certificate of the policyholder. This can be obtained from the policyholder’s doctor, the doctor present at the time of death, or the funeral director.

3. Contact the insurance company that issued the policy. Such information is usually available on the policy document. There will be a clearly defined procedure for informing the company of the death of the policyholder. If you have any doubts over it, or if anything is unclear, contact the company for clarifications, or ask your insurance broker for guidance.

4. Submit the death certificate to the insurance company, without which the processing of the claim cannot begin.

Procedures for processing claims may vary from company to company. However, this is all that is usually required in general.  The next stage is deciding on the mode of receiving the money.

Receiving the payment

When a claim is filed under a life insurance policy, the beneficiary usually has a few options available on receiving payment. Again, the options will vary in degrees from one insurance company to another, but in general, they are as follow:
  • Lump sum payment: All the money due to a beneficiary will be given in one single payment, after which nothing further is due from the insurance company
  • Scheduled payout: A specified part of the money due under the policy is paid at a future scheduled time as defined by the beneficiary.
  •  Life income: The beneficiary receives a monthly payment for the rest of his/her life. The quantum of the payment is based on the value of the insurance policy and the life expectancy of the beneficiary.
  • Specified period income: The beneficiary receives a regular monthly payment for a predefined period of time.
  • Joint and last survivor income: If the policy is a joint one, the surviving insured person will receive a fixed monthly payment for the rest of his/her life. In some cases, there is the option to give part of the money available to a third party.
Filing a life insurance claim is designed to be simple and easy. However, this needs to be done by a beneficiary who is greatly affected by the bereavement of the benefactor, a dearly loved one. That is why seeking the help of an experienced insurance professional is the right course of action. They will give all the relevant information, and guide properly in claiming the insurance benefits due.