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Do a cost-benefit analysis to figure out whether buying a fresh policy is better than paying arrears for the previous years plus the late fees.

Have you let your Life Insurance Corporation of India (LIC) policy lapse in the last few years? If you have done so due to reasons beyond your control and want the coverage to be reinstated, you have time till March 25, 2022, to do so.

The public sector life insurance giant, which is coming with its maiden public issue in March, announced a new campaign for the revival of such lapsed policies. Here’s all that you need to know about the scheme.

A policy is termed ‘lapsed’ if policyholders fail to pay their premiums on the due date and even during the 30-day grace period. Many policyholders tend to let their policies lapse due to several reasons such as oversight, lack of funds, relocation, and so on. Revival gives such policyholders a second chance at getting the life cover restored and recouping investments made (read premiums paid) in the policies earlier. For policyholders, a lapsed policy means loss of premiums paid until then. For life insurance companies, too, a low persistency ratio (in other words, a high lapsation rate) is negative. This is the reason why policy reinstatements are important for both. “While the current COVID-19 pandemic has emphasized the need for mortality protection, this campaign is a good opportunity for LIC’s policyholders to revive their policies, restore life cover and ensure financial security for their family,” LIC said in a press release.

Even without special schemes, policyholders can typically revive their policies within five years (three years for Ulips) from the due date of first unpaid premium or before the end of the policy tenure, whichever is earlier. They have to pay outstanding premiums, interest and other taxes and charges that may be applicable. However, under special schemes, policyholders with lapsed life insurance covers are given an opportunity to revive these policies with some concessions in penal charges.

What are the concessions that LIC is offering under the current special revival scheme?

LIC launched this campaign on February 7, 2022 and the window will be open until March 25, 2022. LIC is offering a discount (see table) on the penal late payment charges, though this is not applicable to term insurance policies. For example, if your total premiums due is Rs 3 lakh, you will get a 30 percent discount on the late fee applicable or flat Rs 3,000, whichever is lower. However, there are no concessions on any medical requirements – that is, health check-ups that you might have to undergo before the life cover is restored will not be waived off.

You need to take various factors into account, before taking a call on reviving the policy. For one, it will depend on the type of policy you own and the amount of premium you have paid until then. If it’s an insignificant amount, you can give the revival process a miss. However, if you paid a substantial premium till the date of lapsation and your traditional policy has acquired surrender value, you can consider getting the policy reinstated. Do a cost-benefit analysis to figure out whether buying a fresh policy is better than paying arrears for the previous years plus the late fees. After all, you will be paying premiums for a period when you have not enjoyed the life insurance cover.

Unlike investment-cum-insurance policies such as traditional endowment plans and Ulips, term insurance covers do not offer any maturity proceeds. “In the case of term insurance, there is no payout, but only the coverage. So, there is no strong reason to pay any charges or premiums for the lapsed period. Buying a fresh cover is better,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.

Pure risk simply pays out the sum assured to policyholders’ dependents after their death. Therefore, they do not give rise to a situation where you feel the need to recover your past investments (premiums paid). So, you would be better off buying a fresh term cover. Unless you are finding it difficult to buy a fresh cover or the arrears that you will have to pay plus the late fee are substantially lower than the fresh premiums being charged to you. For example, LIC’s revival scheme does not offer any discounts on late fees on term insurance policy revival, nor does it waive off any medical requirements. “There is a case of term insurance revival only if your health status has changed and new policy premiums are much higher than the lapsed ones. And, only if the insurer is willing to reinstate the cover on the basis of your previous health status and a declaration,” says Sadagopan.

All covers, including term insurance policies, can be revived during this campaign.