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Lapsed Policy Meaning in Life Insurance
Neviya LaishramDec 22, 2025
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Definition: A lapsed policy in life insurance means the policy has become inactive because the premium was not paid even after the grace period. Once a policy lapses, life cover and benefits stop until the policy is revived, if revival is allowed.
Contents
What is Policy Lapse in Life Insurance
A policy lapse in life insurance happens when the policyholder fails to pay the premium even after the allowed grace period. As a result, the insurance contract becomes inactive, and the plan turns into a lapsed policy. Once this happens, the insurer stops providing life cover, and the policy no longer offers financial protection to the insured’s family.
Risks of a policy lapse in life insurance include:
Immediate loss of life insurance coverage
No death benefit payable to beneficiaries
Extra costs to revive the policy, including interest or medical check-ups, depending on the insurer’s terms
Common Causes for Insurance Policy Lapse
An insurance policy lapse usually happens due to missed premium payments. In most cases, it is not intentional but caused by everyday situations that disrupt timely payments. Some of the common causes of policy lapse in life insurance include:
Missed premium payments: Forgetting the due date or failing to pay the premium even after the grace period is the most common reason a policy lapses.
Financial difficulties: Job loss, medical emergencies, and temporary cash shortages are some of the unexpected financial situations that can make it difficult to pay premiums on time.
Lack of awareness: One of the most critical and common reasons for a policy lapse is that many policyholders are unaware of premium due dates, grace periods, or how policy lapse rules work. This lack of clarity leads to an insurance lapse.
Switching insurance plans: When moving to a new insurance policy, some policyholders stop paying premiums on the old plan. This causes the earlier life policy to lapse.
Grace Period in Life Insurance Before Policy Lapse
A grace period in life insurance is the extra time given after the premium due date to make the payment without losing coverage. During this period, the policy remains active, and life insurance benefits continue.
The grace period usually is:
15 days for policies with monthly premium payments
30 days for policies with quarterly, half-yearly, or annual payments
If the premium is not paid within the grace period, the insurance policy is deemed to be lapsed. At this stage, the policyholder can no longer enjoy life cover or policy benefits.
Is it possible to restart a lapsed insurance policy?
Yes, in many cases, a lapsed policy can be revived within the revival period mentioned in the policy document. To reinstate a lapsed insurance policy, the policyholder must pay all unpaid premiums along with applicable interest or late fees. Depending on the insurer’s rules, a medical examination may be required before approving the revival.
Example:
Ritu has a term insurance policy with a monthly premium of ₹ 10,000. Unfortunately, she loses her job, resulting in two consecutive premium payments of ₹20,000 being missed. Her policy lapses, and the life cover ceases immediately. However, her policy can be reinstated with full benefits if Ritu manages to pay the two missed premiums (₹20,000) along with any applicable interest or late fee, within the revival period.
How to Avoid a Life Insurance Policy Lapse
A life insurance policy lapse usually happens due to missed premium payments. So, here are some ways to avoid a lapsed policy:
1. Set Up Auto-Debit for Premium Payments
When you set up auto-debit with your bank or insurer, the premium amount is automatically deducted from your bank account on the due date. This reduces the chance of missing a payment. All you have to do is make sure there is enough balance in your account so the deduction goes through smoothly.
2. Choose Affordable Premiums and a Suitable Payment Frequency
Pick a premium amount based on your income and choose a payment frequency that is suitable for you. If your income is irregular, paying premiums annually or half-yearly can reduce the chances of missing payments. This helps reduce the risk of an insurance policy lapse.
3. Use Reminders and Plan Your Budget
Setting reminders a few days before the premium due date can help you stay on top of upcoming payments. Adding the premium amount as a fixed expense in your monthly budget also ensures you are prepared and avoids an insurance lapse.
4. Consider a Single-Premium Policy
If you can afford it, choosing a single-premium life insurance plan can remove the risk of a policy lapse altogether. Since the premium is paid up front, there are no future payments to miss.
Lapsed Policy Vs Surrendered Policy
Any policy that has lapsed or has been surrendered implies that it is no longer active. However, there are some key differences between them. Let’s have a look.
| Feature | Policy Lapse | Policy Surrender |
|---|---|---|
| Meaning | A policy lapses or becomes inactive when premiums are not paid beyond the grace period. | Voluntary surrender of the policy before maturity. |
| Initiator | Automatically initiated due to missed payments. | Voluntary initiation by the policyholder. |
| Coverage | Life insurance coverage ends immediately. | Coverage continues until the surrender request is processed. Then, the policy terminates. |
| Benefit Payout | No benefits will be payable unless the policy is revived. | Surrender value is paid to the policyholder, depending on the policy type and terms. |
| Policy Restart | Can be revived within the period specified in the policy document. | Cannot be revived; once surrendered. |
Impact on Beneficiaries | Beneficiaries are not entitled to the death benefit. | Once surrendered, the policy ends. No death benefit is payable. |
| Costs Involved | Insurers may ask for late fees or medical check-ups during revival. | Insurers may ask you to pay surrender charges. |
Bottom Line
Life insurance is a valuable financial tool designed to protect your family’s financial future, but that protection only works if your policy stays active. A lapsed policy can take away that protection. While most policies can be revived, they often come with extra costs and conditions like medical check-ups. So, make sure to stay on top of your premium payments and set reminders as needed.
Frequently Asked Questions
Below are some of the frequently asked questions on Lapsed Policy in Life Insurance
What will happen if I make a late premium payment?
If you make a late premium payment within the grace period (usually 15–30 days, depending on your payment frequency), your life insurance policy will stay active. However, if you miss the payment even after the grace period, your policy will lapse.
What does it mean when a policy is lapsed?
A lapsed policy means your life insurance has stopped working because you didn’t pay the premium on time, even after the grace period.
Can a Lapsed Policy Be Revived?
Yes, most life insurance policies can be revived within the revival period mentioned in the policy document. To revive a lapsed policy, the policyholder must pay all unpaid premiums along with applicable interest or late fees. Depending on the insurer’s rules, a medical examination may be required at the time of revival.
Can I renew a lapsed policy?
A lapsed policy can be revived during the period specified in the policy document.
What is the difference between surrender and lapse?
There are many key differences between surrender and lapse. One of the main differences is that a lapse happens automatically when you miss your premium payments and don’t pay within the grace period; on the other hand, a surrender is a voluntary action by the policyholder.
What is a lapsed policy status?
A lapsed policy status means your policy is currently inactive because the premium was not paid even after the grace period.
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