Insurance Policy Revival
A revival is as important as a new policy proposal.
The general underwriting formalities will be carried out at the time of the revival of the policy such as:
- Assessment of risk at the time of revival
- Risk should be the same as the original sum assured less paid-up value on the date of lapse
- Has the option to revive as per the original policy terms
- Has the option to revive the modified terms
- Can decline the revival
Continued good health is necessary for revival.
Conditions for Revival
A revival of the policy cannot, however, be an unconditional right of the insured. It can be accomplished only under certain conditions:
- No increase in risk for insurer: Revival of a policy cannot result in an increase in risk for the insurance company.
- Creation of reserve: The policyholder must pay such amount of premiums with interest, as would lead to the creation of the same reserve it would have accumulated if the policy had not lapsed.
- Revival application within the specific period: The policy owner must complete the revival application within the time frame stated in the provision for such reinstatement. In India, the revival must be affected within a specific period, say five years, from the date of lapse.
- Satisfactory evidence of continued insurability: The insured must present to the insurance company satisfactory evidence of continued insurability of the insured. Not only must the health be satisfactory but other factors such as financial income and morals must not have deteriorated substantially.
- Payment of overdue premiums with interest: The policy owner is required to make payment of all overdue premiums with interest from the due date of each premium.
- Payment of outstanding loan: The insured must also pay any outstanding policy loan or reinstate any indebtedness that may have existed.
Decision to Revive
We have seen that revival may require the policyholder to pay a sizeable sum of money – (past arrears of premium and interest) for the purpose.
In the given circumstances, each policyholder has to decide whether it would be more advantageous to:
- Revive the original policy or
- Purchase a new policy
Revival is often more advantageous because buying a new policy would call for a higher premium rate based on the age the insured has attained on the date of revival.
Policy Revival Measures
Let us now look at some of the ways through which policy revival can be accomplished. In general, one can revive a lapsed policy if the revival is within a certain period (say 5 years) from the date of the first unpaid premium.
Documentation – Policy Conditions Documentation – Policy Conditions Instalment Revival When the policyholder is not in a position to pay arrears of premium in lump sum and neither can the policy be revived under special revival scheme.
The arrears of premium in such case would be calculated in the usual manner as under an ordinary revival scheme.
A condition may be imposed that there should be no outstanding loan under the policy at the time of revival.
Depending on the mode of payment (quarterly or half-yearly), the life assured may be required to pay one half-yearly or two quarterly premiums.
The balance of arrears to be paid would then be spread so as to be paid with future premiums on premium due dates, during a period of two years or more, including the current policy anniversary year and two full policy anniversaries thereafter.
When a policy lapses, the policyholder has several choices under the Insurance Act. These are known as non-forfeiture options.
The options are:
- Eligibility of surrender value
- Making the policy paid up
- Keeping the policy in force through premiums advanced from the surrender value
- Providing term insurance cover from the surrender value
What should be done?
Ordinary Revival Done when the policy has acquired surrender value
- Payment of arrears of premium with interest
- Submission of declaration of good health or some other evidence of insurability like a medical examination
Special Revival When the policy has run for less than three years and has not acquired minimum surrender value (that is, the accumulated reserves or cash value is insignificant) but the period of lapse is large, say the policy is coming up for revival after a period of one year or more since the date of first unpaid premium. It is as though a new policy has been written, whose date of commencement is within two years of the original date of commencement of the lapsed policy.
The maturity date shall not exceed the original stipulated period as applicable to certain lives at the time of taking the policy.
Loan cum Revival Only for policies that have acquired surrender value as on date of revival This is not revival but involves two types of transactions.
- The simultaneous granting of a loan
- Revival of the policy