Reinstatement Period in Term Insurance

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.

What does reinstatement mean?

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 and interest along with the outstanding premium amounts. This can vary according to the terms and conditions of the insurer.

When does a Term Plan lapse?

A Term Plan usually lapses due to 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 untimely demise of the policyholder. 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 in the grace period, it may cause the policy to lapse. A lapsed policy does not provide coverage.

Death benefits during the grace period

Death benefits are paid to the nominee in case 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.

How does reinstatement work?

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 after the grace period is over the policy becomes inactive. This means that no claim will be paid to the beneficiary in case the policyholder passes away.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 for the process that needs to be followed. The insurance company can also be directly contacted for more information.

Ways to reinstate a lapsed policy

The two ways to reinstate a lapsed policy are as follows.

Within the grace period

This is the extra period provided by the insurance company 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

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.

Advantages of reinstatement of a Term Policy

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. 

• Existing terms and conditions: With the reinstatement of the existing policy during the revival period, the old terms and conditions as stated by the insurer are applicable. In case a new Term Plan is purchased, it might have new terms and conditions as stated by the insurer.

• Premium payment: The payment of premiums towards a new Term Plan will usually cost more than clearing the outstanding payments for a lapsed policy. This will have way more impact in case the health of the policyholder has changed over time. In that case a new plan may require a medical test and in the case of any pre-existing illnesses, it might affect the sum assured or the cost of premiums.

• Incontestability period: This is a time period usually in most life insurance policies or in some Term plans where the insurer can question the payout of the policy within the first two or three years of purchase. The time period may vary from one insurer to another. 

In case of reinstatement, the incontestability period will be counted from the original date of purchase and not the date of revival. On the other hand, in the case of the purchase of 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 policy purchase. His premium based on all factors was calculated to be Rs 7,000 per year. 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 the medical examination again to prove his 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.

Steps to avoid a lapse in policy

Some steps to avoid a policy lapse are as follows. 

• Timely premium payment:The best way to secure one’s family from financial emergencies is to invest in a Term Plan. Non-payment of premiums over a long period of time may compromise this safety net. Therefore, timely payment of premiums must be prioritised under all circumstances.

• Auto-debit payment feature:Depending on the plan of premium deduction, the auto-debit feature will automatically debit the amount from the policyholder’s account. This feature saves the policyholder from setting reminders for payments and making the payments online or offline.

• Choose payment frequency according to income: In cases of heavy premium payments, annual payments should be avoided as they may become overbearing to the policyholder. Instead, monthly premium payments are an advisable option in this case.

• Choose a calculated death benefit: Death Benefits should be chosen according to the affordability of the premiums.

• No-lapse policy: Under the no-lapse guarantee, if the premium is paid under a designated time period, the policy does not lapse.

• Choose a plan as per your budget: Term Plans are one of the best financial investments that one can make, but they come with a long-term commitment. Therefore, the policyholder must have an in-depth understanding of his financial commitments and liabilities. With the change in income, the amount paid towards premiums should not become overbearing.

• Avoid adding riders/add-ons: The addition of riders makes a basic plan more comprehensive. These are additional services that help the policyholder customise the plan to meet his individual needs. However, they come with an additional cost. Bundling of riders may increase the overall amount of the premium to be paid towards a Term Pan. Therefore, the choice to add riders must be wisely made and the amount of premium should be calculated before purchasing a policy.

Points to remember

Some points to remember regarding Reinstatement Period in Term Insurance are as follows.

• An application to reinstate is to be given to the insurer. A standard revival form needs to be filled out and some additional formalities may be included according to the terms and conditions of the insurer.

• A medical checkup may be required as proof of the good health of the policyholder. This may depend on the requirements of an insurer. Most insurance companies facilitate medical checkups at home or in designated clinics.

• It is important to note the revival period of the Term Plan. There is a specific period after the grace period in which a policy can be revived. This period should be taken note of and the revival application should be sent during this period. Please read the policy document for detailed information.

• Reinstatement is a more economical option than buying a new policy. 

• There might be some changes in the terms and conditions of the policy document. These can be clearly understood and read in the policy document before the reinstatement.

• A policy can be protected from lapsing by opting for automatic payments and choosing the premium amount wisely. This is a crucial step and should be undertaken carefully.

• The terms and conditions for reinstating a policy will depend on the terms and conditions of the insurer. These should be carefully understood at the time of the purchase.

Frequently Asked Questions

Here’s a list of common questions and answers related to the Reinstatement Period in Term Insurance.

Will the sum assured change after the reinstatement of a policy?

Some circumstances like changes in the health condition of the policyholder during the reinstatement period may bring about change in the sum assured.

Will the amount of premium be the same after the reinstatement?

The premium amount may change after the reinstatement of a policy according to the terms and conditions of the insurer. 

Can I reinstate my policy term any time after the grace period?

No, there is a definite time after the grace period that is valid for reinstatement. This usually depends on the clauses of the policy document.

Why should I reinstate a lapsed Term Plan?

A Term Plan is one of the best financial cushions that one can provide to his family in his absence. In case of any unforeseen events, Term Plan can help the policyholder’s family survive without compromising on the current standard of living and meeting any other financial obligations. Reinstating such a policy will be more affordable than seeking a new policy.

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.

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