What is a Discontinued Policy in Life Insurance?

A discontinued policy in life insurance refers to a plan that is no longer active because the policyholder has stopped paying premiums or has chosen to discontinue it before the end of its term. This blog explains how discontinued policies work and what you can do if your policy is marked as discontinued.

A discontinued policy in life insurance refers to a plan that is no...

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Key Takeaways

A discontinued policy occurs when the policyholder has stopped paying premiums or has chosen to discontinue it
ULIPs typically allow discontinued policies to remain in a special fund called the Discontinued Policy Fund, while traditional policies may be converted to paid-up status or surrendered based on their surrender value.
Discontinued policies earn a low but guaranteed interest rate as regulated by IRDAI.

How a Discontinued Policy Works in Life Insurance

A discontinued policy can come into play when you stop paying premiums on your ULIP. Instead of ending the policy right away, the insurer moves the money you’ve invested into a separate account called the Discontinued Policy Fund.

Here’s what happens step by step:

Once you miss a premium after the lock-in period, the insurer starts the discontinuance process.
The insurer sends a notice giving you the option to revive the policy within a limited time.
If no action is taken, your accumulated fund value is shifted to the Discontinued Policy Fund.
Your money stays invested in the fund and earns a minimum guaranteed return as regulated by IRDAI.
The life cover stops, and you no longer receive the benefits of an active policy.
You can choose to revive the policy within the allowed revival period, surrender it, or receive the fund value as per the payout rules in your policy.

In short, a discontinued policy is not entirely shut down, but it is no longer active. It still holds value and can be revived if you act within the allowed timeframe.

Real-Life Example Scenario

Ravi purchased a ULIP with a 10-year term and a five-year lock-in period. He paid premiums regularly for the first six years but missed payments in the seventh year.

Since the lock-in period had already been completed, Ravi’s policy did not lapse immediately. After sending him a revival notice, the insurer moved his invested money to the Discontinued Policy Fund (DP Fund). Once the policy was moved to the DP Fund, Ravi’s life cover stopped, and no other policy benefits remained active. The DP Fund continued to earn the minimum guaranteed return. Later, in line with ULIP payout provisions, the insurer paid Ravi his DP Fund value.

How to Revive a Discontinued Policy

To revive your policy within the allowed revival window, you must:

Contact your insurer to request revival.
Pay all due premiums
Fulfil any underwriting requirements, if applicable.

Once revived, the policy continues with its original benefits and fund allocation.

Conclusion

A discontinued life insurance policy is not active, but it still holds value. While it no longer offers life cover, your fund remains safe and may even earn interest. It’s a reminder of how important regular premium payments are in keeping your policy benefits intact. If you’ve missed payments, it’s worth checking if you can revive the policy and get back on track with your financial goals.

Frequently Asked Questions (FAQs)

What is a Discontinued Policy Fund (DPF)?

It is a fund where your invested amount is parked after the policy is discontinued. It earns a minimum guaranteed interest. If your policy is stopped during the lock-in period, you will receive your money only after the lock-in period ends. If your policy is stopped after the lock-in period, you will receive your money after the revival period ends (if you don’t revive it) or earlier if you choose to surrender.

What is the meaning of policy discontinued?

A discontinued policy means one in which the policyholder has stopped paying regular premiums. As a result, the policy is treated in accordance with the applicable discontinuance provisions under the policy terms and IRDAI regulations.

Can I revive a discontinued policy?

Yes. Most insurers allow you to revive a discontinued policy within the revival window. You’ll need to pay all due premiums and meet any underwriting requirements.

Is the life cover active during the discontinued period?

Usually, no. Once a policy is discontinued, the life cover ceases unless you revive the policy.

Are discontinued policies applicable to all life insurance plans?

No, the concept of a discontinued policy mostly applies to ULIPs, not traditional endowment or term insurance plans.

Written by Neviya Laishram

1.7K Linkedin Followers

Reviewed by Vaibhav Kumar Kaushik

A senior editor with years of expertise, she fine-tunes content that connects, converts, and builds trust. She transforms heavy life insurance concepts into clear, aha-moment reads. Writing is her passion, and thinking ahead is second nature. When not wrangling words, she’s crushing game levels because every challenge is a puzzle waiting to be solved.