Now you have 2 years to revive a lapsed Ulip

A lapsed policy is the last thing a responsible person would want in his/her balance sheet. Imagine the scenario. A policyholder forgets to pay the premium on the due date. He/she fails to pay the premium even after reminders from the company asking him/her to renew the policy within the grace period. The reasons for not paying the premium may be a temporary financial crunch or something serious and unanticipated.

But he/she would lose the insurance cover. In the process, the policyholder's worst nightmare could come true if something were to happen (euphemism for death) to him/her during the period. The whole purpose of buying a life cover - to support the family financially when one is not around - would be entirely defeated.

However, some Ulip (unit-linked insurance plan) holders would get more breathing space now thanks to the recent decision of the Insurance Regulatory and Development Authority (IRDA) to allow policyholders to revive their policies within two years from the premium due date.

The new guideline will be applicable only to Ulips issued after September 1, 2010, when the course-altering norms for Ulips were put in place by the regulator. However, Ulips that have crossed the lock-in threshold of five years will not get any benefit from these regulations.

Relaxed rules

The revised norms, which will become effective from November 1, are aimed at making it easier for policyholders to reinstate their policies that have lapsed. "Under the earlier guidelines, one could not revive their policy once it lapsed 60-75 days after the premium due date. The policy was treated as withdrawn and the balance amount moved to the discontinued policy fund. With the new guidelines, one has the option of reviving the policy for a period of two years (but within the lock-in period of five years)," says Gaurav Rajput, director, marketing, Aviva India.

Until now, if premiums were not paid within the grace/notice period, the accumulated funds were transferred to the discontinued policy fund and remained locked in till the end of the fifth year of the policy, after which it would become payable to the policyholder.

"After this circular, once monies are moved to the discontinued policy fund in the first five years, the policy can be reinstated for up to two years. In which case, the cover will be reinstated subject to underwriting, and the client will again get a choice of investment funds," explains Andrew Cartwright, chief actuary, Kotak Mahindra Old Mutual Life Insurance. For policies more than five years old, reinstatement is not possible, as the funds become payable immediately after discontinuance.

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