Revive lapsed policies by paying interest on unpaid premiums

Published in Mint on 20 October, 2015, Written by Abhishek Bondia

What does one get if she survives the term of the policy?
—Karthika

In case of a typical term insurance policy, the survivor does not get any benefit on expiry of the policy term. A term insurance policy is a protection plan. So, if any kind of mishap does not happens during the policy period, no benefits accrue to the policyholder. However, in some term plans, there is an investment component built in. These plans are called return of premium plans. In these, the face value of all premiums paid is returned to the insured. In other non-term plans, there is a maturity benefit clearly specified that is paid when the term is completed.

If I am unable to pay the premiums on my policy before the due date, what is the time period available for paying it?
—Bhaksar Jain

Life insurers allow a grace period beyond the due date for payment of premium. Typically, a grace period of 15 days is allowed for monthly mode of premium and 30 days for quarterly, half-yearly and yearly premium payment. If a person dies during the grace period, then generally the outstanding premium is deducted from the sum assured and the remaining benefit is paid. If the premium payment remains overdue after the grace period as well, the policy is considered as lapsed.
Lapsed policies can be revived with payment of interest on unpaid premiums. Generally, if the revival of a lapsed policy is done within six months, then no medical declaration is required. If revival is done after six months, then depending on the sum assured, either a medical declaration or complete medical underwriting is done.

What is fund value and how it is determined?
—Harsh Singhal

The concept of fund value is relevant to unit-linked insurance plans (Ulips). These plans have several underlying funds, which differ from each other based on debt and equity composition. Generally, insurers offer a fund that has 90-100% equity exposure, a fund with 80-100% debt exposure and one with 50% exposure each to equity and debt. Sometimes, there is a fourth fund with highly liquid investments. Premiums paid by the insured are invested in a combination of these funds, as desired by the insured. Each fund has a prevailing net asset value (NAV) that is based on the market value of its investments. Based on the amount invested and the respective NAV, units are allocated to the insured for each fund.
The fund value represents the current NAV of each fund multiplied by the number of units held in that fund. This is the market value of the insured’s investment.

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