If premium is overdue after grace period, the policy lapses

Published in Mint on 9th Sept 2014, Written by Abhishek Bondia

I missed paying past few months’ premiums. Can I start paying my premium again? Are there any charges?
—Shaheen Jamal

If premium is overdue after the grace period, the policy lapses. You can start paying the premium again after reviving the policy. Fill a revival form and pay the unpaid premium along with interest and any penalty levied by the insurer. Commonly, if the revival is done within six months, insurers levy interest on the unpaid premium and do not charge any penalty. Beyond six months of lapsation, insurers do levy a penalty.
Besides this, if the sum assured is high, insurers tend to also conduct a medical check-up before reinstating the sum assured. Do note that once the policy has lapsed, the insurer has the right to revise the terms and conditions.

What is assignment? How does one make an assignment of a life insurance policy?
—Mayank Senthil

Assignment of a policy transfers all rights of the policy to the assignee. All proceeds, both survival and death benefits, from the policy, thereafter, go to the assignee. The insured and the nominee do not have any rights on an assigned policy. Typically banks ask for assignment when a policy is kept as collateral.
You need to fill an assignment form, submit the original policy copy and know-your-customer documents of the insured. After submitting these documents, the insurer takes about 15 days to endorse the assignment in the policy. Any notice of unpaid premiums or default thereafter goes to the assignee.

What is the criteria for determining the eligibility of a loan under a life policy?
—Gaurav Kumar

A life insurance policy becomes eligible for loan once it acquires a surrender value. This is to ensure that in case of default, the lender can liquidate the policy to recover the loan. Typically, the loan granted is less than the surrender value to keep a buffer for unpaid interest. Some insurers offer loan on a life insurance policy after few years of paid premium.

My company wants to buy keyman insurance for me? How does it benefit me?
—Faisal Majeed

Keyman insurance is a term insurance policy wherein the insured is a key employee of the company and the beneficiary is the company itself. In case of death of the employee, the proceeds will go to the firm and not the employee’s family. The purpose of keyman insurance is to safeguard the company from sudden impact on cash flows due to death of the employee. An example of keyman are the key business development personnel. In keyman insurance, the premium is treated as a business expense and the death benefit, if paid, is subject to corporate tax.

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