Should You Buy a New Term Insurance Plan or Revive the Old One?

When a term insurance plan lapses, the coverage stops immediately. This means your nominee won’t receive any benefit if something happens to you during the lapse period.

But when the policy ends due to non-payment, you have two choices. You can either revive the old policy or get a new one. Both choices have benefits and drawbacks.  So, here’s everything you need to know about the implications of a policy lapse and the steps to revive it.

Understanding What Happens When Your Term Insurance Lapses

A term insurance plan lapses when you fail to pay the premium within the grace period, which is usually between 15 to 30 days.

Once this period passes without payment, your policy becomes inactive, and the coverage stops. This means your family will not receive any financial support from the life insurance plan if something happens to you.

Thus, it's important to act promptly when your policy lapses to ensure your family's financial security. Review the terms of your existing policy and consult with your insurance provider to understand the best course of action.

Option 1: Reviving Your Old Term Insurance Plan

Before deciding to revive your lapsed term insurance policy, it's essential to understand the advantages and disadvantages to make an informed choice.

Advantages of Reviving:

• Lower Premiums: If your health remains stable, reviving your old plan can be a more cost-effective option. This is because premiums depend on your age and condition when you first bought the plan, not current factors.
• Retention of Benefits: Old plans may have added features like riders or special perks. Reviving helps you keep those. Starting fresh might mean losing these valuable additions.
• No Need for New Medical Tests: In some cases, insurers allow policy revival without fresh health check-ups. This is especially true if the lapse period is short. This can save time and avoid medical hassles when restoring your coverage.
• Continuity of Coverage: Reviving your existing policy ensures that your family's financial protection continues without interruption. This is while maintaining the original terms and conditions.

Disadvantages of Reviving:

• Penalties and Interest: To revive a lapsed policy, you usually need to pay all missed premiums plus extra charges. These added costs can increase the total amount you owe to reinstate your plan.
• Limited Revival Period: Insurance providers set a fixed time, often between two to five years, for policy revival. If you miss this window, reviving the plan is not possible, and you must consider other options.
• Health Declarations: If your health has worsened since the policy lapsed, the insurer might refuse to revive it or apply stricter terms. This could mean higher costs or even denial of renewal.
• Potential Waiting Periods: Some insurers may impose a waiting period after revival. This is done before certain benefits become active. This temporarily limits full coverage.

Option 2: Buying a New Term Insurance Plan

When your existing term policy lapses, purchasing a new plan can offer updated features and flexibility. However, it's essential to understand both the benefits and potential drawbacks before making a decision.

Advantages of Buying New:

• Updated Coverage: New policies often come with enhanced features. This includes the return-of-premium options or additional riders. It allows you to tailor the coverage to your current financial goals and family needs.
• Digital Convenience: Purchasing a term insurance plan online simplifies your entire process. It enables you to compare various policies, read reviews and complete the application from the comfort of your home.
• Flexible Terms: Modern policies offer customisable terms and sum-assured amounts. This ensures that the coverage aligns with your present financial situation and long-term objectives.
• Improved Claim Settlement Processes: Newer policies may come with streamlined claim procedures. This ensures faster and more efficient settlements for your beneficiaries.

Disadvantages of Buying New:

Higher Premiums: As you've aged since your original policy, premiums for a new term policy will likely be higher. This reflects the increased risk associated with age.

• Medical Underwriting: New policies require fresh medical evaluations. It could lead to higher premiums or exclusions if health issues are detected during the assessment.
• Waiting Periods: Some new policies have waiting periods before certain benefits kick in. This leaves you temporarily underinsured during the initial phase of the policy. 
• Loss of Previous Benefits: Switching to a new policy means giving up your old benefits, which might have been better for you.

Conclusion

Choosing between reviving a lapsed policy and buying a new one depends on three key factors. This includes your health, finances, and coverage needs. Reviving your old policy can be a smart move. You may get lower premiums and keep your original policy benefits. But if the revival window has passed or your needs have changed, a new policy might be the better fit.

Whatever you choose, one rule stays the same: pay your premiums for life insurance or term insurance on time. It’s the simplest way to keep your coverage active and protect your family’s future.