Reviving old LIC policy – is it worth it?

Life Insurance Policies are meant to take care of the most challenging moments of our life. The main aim behind buying any life insurance policy is to protect yourself and your loved ones from the unforeseen events of your life. However, buying a policy doesn’t end everything. To keep the policy effective you have to be vigilant and keep it active by paying insurance premiums on time. If there is any default in payment of premiums beyond the stipulated time, then it will result in policy lapse and consequently, the benefits of life insurance policy shall cease to exist. Similarly, revival of the lapsed policy is also possible by following a few steps. Doing so will enable you to continue your previously chosen coverage plan. It can be done anytime within five years from the date of unpaid premium. For a lapsed policy, the only way is to revive it to continue the benefits of the policy.  

The reasons behind lapse could be any like lack of funds, oversight, relocation etc. A policy is considered to be ‘lapsed’ if the premiums on the due date are not paid even during the 30-day grace period. 

The insurer provides a diverse range of insurance plans and also allows the revivals to help you continue with an intention to protect the financial goals of your family intact. All insurance companies are required to offer a revival period of two years to reinstate insurance policies. Our aim in this article is to know about recovery/revival of the lapsed LIC policy in detail. 

Importance of revival of lapsed LIC Insurance Policy:

The original policy document has the option of reviving lapsed policy and hence the insurer cannot decline the revival of your life insurance policy. It is not some cumbersome process. You can even revive it online in a simple and hassle free way. It will not take much of your time. As mentioned in the above paragraphs, you cannot avail of the benefits of your insurance policy if it is found lapsed at the time of making the claim. Even if you paid the premium for many years, it would not suffice if the last premium is not duly paid. Revival is a fresh contract wherein the insurer can impose fresh terms and conditions. 

Revival of the policy has been taken up by the LIC as a new campaign for the year 2022. By reviving the policy, a policyholder gets a chance to get the life cover restored. The premiums that have already been paid are useless if the policy lapses. The insurance company also stands to lose because of the high lapsation rate. Revival of policy will be beneficial for both the parties namely the insurer and the policyholder.  The LIC has emphasised the fact that policy reinstatements are necessary especially while the world is witnessing the current pandemic. Under this campaign or otherwise, policy revival is always a welcome step. 

The policy holder shall have to pay outstanding premiums, interest and other taxes in order to recover the lapsed policy. Under the special scheme some concessions are offered in penal charges to the policyholder. 

As we already know about the importance of  reviving a lapsed policy, now let us learn about the various ways in which a policy can be revived.

Types of revival

1. Ordinary Revival-A policyholder can revive his/her lapsed life insurance policy by paying all the unpaid premiums with interest. The insurance company may ask to submit a declaration of good health along with a medical report under form No.680. Insured person can visit the branch and deposit the amount. However, if the revival of the policy is effected within 6 months from the due of first unpaid premium, no such submission is required. The policy shall be revived on collection of delayed premium with interest. The interest rate depends upon the date of commencement of the policy. 

2. Special Revival-If the policyholder is unable to pay the premium in a lump sum, a special revival scheme can be used whereby an individual can pay only one due premium according to his/her age. The declaration of good health under form No.680 and few other conditions might be required to be fulfilled while doing so. However, this type of revival can be made only once during the complete term of the policy. Policyholder has to give a written request for reviving the policy. Policy must not have been lapsed for a period of less than 6 months or more than 3 years reckoning up to the date of revival. Maturity age shall not exceed the original stipulated period under respective plan.  Revival requirements will be as per the usual terms and conditions as applicable from time to time. Difference between old premium and new premium with interest thereon will be collected as on the date of revival.. In case of Money Back plan, policy preparation charges and stamp fee will have to be borne by the policyholder.

3. Instalment Revival-In case the policyholder cannot pay all the due premiums in lump sum and is not eligible for the Special Revival Scheme also, Instalment Revival Scheme is the available option subject to the following conditions,

-Instalment revival scheme is not applicable to policies issued under Salary saving scheme. 

-There is no loan outstanding under the policy at the time of revival. 

-Revival under this Scheme will be allowed after the deferment period in case of Children Deferred Assurance policies.

-Quotation for the payment is available in the servicing branch.  

-The arrears of premiums are for more than one year. 

The remaining amount of premium must be paid in instalments during a period of 2 years along with the regular policy premium. Declaration of Good Health and a medical exam report might be required.Revival requirements will be as per the usual terms and conditions as applicable from time to time. 

4. Survival Benefit-cum-Revival Scheme-It is typically applicable to money back policies. The policyholder gets this option when the due date on which the survival benefit is due comes before in-line policy renewal date. But where the revival amount is higher than the amount received by way of the survival benefit , the policyholder gets the excess. Similarly the policyholder receives the excess survival benefit when the survival benefit amount is higher than the revival amount.

5. Revival on non-medical basis-A policyholder must ensure that the revival amount is not more than the prescribed limit for the particular non-medical insurance that he/she has taken, in order to revive the policy on non-medical basis. 

6. Revival on medical basis-The policies which are not eligible for revival under the ordinary or non-medical basis become eligible for revival with medical requirements based on the revival amount. 

7. Loan-cum-revival Scheme-Under this scheme you can revive your policy with the help of a loan if the policy has acquired surrender value by the revival date. The loan amount will depend upon the number of premiums paid till the revival date. In case the revival amount falls short of the available loan, the difference is to be by the insured. But if there is an excess, it shall be returned to the policyholder. 

Concessions for claims during the lapsed period:

A policyholder can claim concession based on the following two conditions-

1.He/she has paid premiums for at least 3 years and discontinued paying premiums thereafter, then in the event of death of the life assured within six months from the due date of the first unpaid premium, the policy money will be paid in full after deducting the unpaid premiums therefrom along with interest till the date of the death. 

2. The policyholder has paid premiums for at least 5 years and subsequently discontinued paying premiums then in the event of death of the life assured within 12 months from the due date of first unpaid premium, the policy money shall be paid in full after deducting the unpaid premiums with interest upto the date of the death.

The Revival Campaign by LIC-2022

LIC has recently launched a campaign on February 7,2022 and the window will be open until March 25,2022. The scheme was introduced in January 2021 and offered the policyholders revival of specific eligible plans and concessions in health requirements. LIC authorised more than 1500 satellite offices to execute the revival scheme without special medical tests. The insurer has offered a deduction up to 30% in the late fee charges. 

The percentage of the rebate depends on the type of the policy and the range of LIC premium payments charges of every client. Under this campaign the LIC is offering a discount on the penal late payment charges. The discount is however not applicable to term insurance policies, Health insurance plans, and Multiple Risk Policies etc. Medical requirements/ health check-ups are mandatory. The insurer can restore most of the policies only on the declaration of good health of the policyholder. A basic Covid-19 questionnaire also has to be submitted by the policyholder.

Furthermore, all policies which have not exited the insurer’s records by way of maturity, surrender or by way of death of the policyholder are eligible for reservation under the Policyholder Reservation. Policyholders with a lapsed LIC policy can apply for shares in the LIC’s initial public offering through the policyholder Reservation Portion. 

The concessions in the late fee charges are divided into three parts which are subject to particular criteria and terms laid down by the insurer. They are shown in the table below:

Is it advisable to revive lapsed policies?

There are a few points which you may like to consider before reviving a lapsed insurance policy,

1. The type of the policy you own and the amount of premium you have paid till date. If the policy value is not much, you can skip reviving it altogether. 
2. If you have already paid a significant amount by way of premium before the expiration of the policy and it has acquired its surrender value, then you can get the policy recovered. 
3. If the cost of getting a new policy is less than continuing the lapsed policy by paying the due amount of premium along with interest, it would be advisable to get a new one. 
4. In case of term insurance you only get coverage and no payout. So if the policy lapses you might consider getting another one with investment-cum-insurance policies such as Unit Linked Insurance Plans. Because to continue you need to pay charges for the lapsed period and you will not get any benefit except the life cover whereas a new cover might give you more and better options at a cheaper or equivalent price. 
5. The insurer must be ready to recover the policy based on your previous health status and a declaration. 

Thus, while reviving LIC Policy the following factors must be kept in mind.

• Tenure of the policy-Revival is possible only if it has not exceeded a specific time duration from the date of policy lapse. Type of the policy also plays a role while determining the duration. 
• Medical records-The insurance company will ask for the health reports depending upon the plan and the sum assured. Those with a medical history or undergoing some kind of treatment will need to submit the health reports.
• Penalties-The amount charged by way of penalty by the insurance company is based on the sum assured and the time after the policy has lapsed. 
• Available concessions-The new campaign gives the ongoing policyholder with lapsed policies an option to revive it. From time to time the LIC introduces such campaigns and offers relaxations in penalties and fee exemptions. However, the offer comes with other terms and conditions. 

A few experts however are of the view that the revival or reinstatement by the insurers are like a trap. They force the policyholders to revive on their own terms and still make them feel indebted. 

It depends on the policy and the insurer, an individual will be paying an 8-9% penalty on unpaid premiums for a plan that will otherwise yield 5-6% returns.The new premium to be paid and policy conditions will also depend on the period for which premiums have not been paid, age of the policyholder and the sum to be revived under the policy. Thus, if your age band has changed from the last unpaid premium due date, the insurance company may increase your mortality rate.

Insurers try to attract  policyholders by putting offers to revive old plans through special spot schemes, and the offer deadlines also hover around March 31 to make you think twice as you have to plan for your tax deductions etc. In case the insurer feels the risk is high in terms of huge sum assured, over two-year-old policies, high chance of the insured developing a new health condition, then it may ask you to undergo a health check-up or submit a declaration of good health. 

If a period of more  than two years has elapsed from the commencement of the cover then it belongs to the pre-2013-guidelines era. If the policy was issued prior to the guidelines, the same will be renewed at the earlier terms and conditions. This is as per contractual guidelines governed by the regulator. By doing so you will get the old plan with bad policy and commission structure and at a higher mortality charge. 

Also note that the annual bonus declared by the insurer during the time the policy lapsed is not available even if you revive the same. If the policy is more than three years old, you should check the surrender value. Let’s study an example-The first year premium was Rs.50,000 The policyholder pays the second year premium which again is Rs. 50,000. The surrender value will be 30% of the premiums paid so 30% of Rs. 1 lakh(total premium paid) i.e, Rs 30,000. So if such is a case like a traditional policy, it can be discontinued if the amount paid by way premium is not much, say just one or two premiums then you can forfeit the money. 

In a term plan the decision to revive an old policy or buy a new one needs to be thought categorically. Online term plans have much lower premiums as compared to the offline ones. And term plans offer a higher minimum sum assured. If the cost of reviving is more than buying a new policy, one should consider the latter, provided the chances of acquiring a disease in the interim still remains a challenge. If the premium payment is already made for several years then reviving it will be logical. 

You may reinstate the plan only if it gives you better outcomes. In case you have developed serious health issues, you should negotiate the premium with your insurer for the current plan instead of getting a new one.

Lapse of more than two years means medical records and health reports will be asked by the insurer to reassess the risk. Ultimately, it will end up in settling for a new policy almost on fresh terms. To renew the old plans even with concessions but with a huge penalty will also be a painful decision for the customers. 

It calls for an in depth study on the part of the policyholder whether to revise the old plan with penalties with the same old benefits or to get a new policy instead that has more coverage options. 

How will you check whether a LIC Policy has lapsed or not?

You need to check if your policy is in force or it has already expired. The online process is the easiest of all the processes to check the policy status. You can do so by registering yourself with the official portal. 

For New Users-The stepwise procedure is explained here.

1. Visit the Customer Portal of LIC.
2. Click on “New User”
3. Fill in the required credentials like name, date of birth, gender, policy number, instalment premium payment, registered email id, mobile number etc.
4. Click “Proceed”.
5. The policy status can be now seen from the online services. 

For Registered Users the steps will be,

1. Visit LIC’s Customer Portal.
2. Click on “Registered User”.
3. Fill in the details such as name, date of birth, registered email id etc.
4. Click on “Policy Status”.
5. You can find the details like due date of premium, unpaid premium, lapsed policy etc under this. 

You can use the Online services of LIC which is the official portal and gives information about the lapsed policy under the feature of “Revival Quotation”. It is easy to know about the due charges through this portal. A registered user can use this feature from the online services provided by LIC. A new user can follow the procedure mentioned above to use this feature. Once you login into the account, all you have to do is, get your revival quotation, pay the premiums including interest. For this select the option of “Policy Renewal/Revival” and fill in the required credentials. Alternatively you can select the “Policy Revival” option and directly pay the premium by providing the policy number. 

Offline procedure:

The policy document provides the reinstatement procedure to be followed. The policyholder can make an application as per the prescribed form. You should contact your agent or visit the company branch to understand the process. Pay the unpaid insurance premium with interest and other charges. 

What happens after revival?

A reinstated policy is as good as a new one. There shall be imposition of new terms and conditions so it is better to read the new policy document and fully understand it. Keep a printed copy of the same with you. 

LIC Policy Revival Scheme 2022 is an option available for those who want to renew their policies. Here is a chance that shouldn’t be missed. The revival process can be performed very easily and the opportunity should be grabbed. 

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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