Haven’t Paid LIC Premiums In 5 Years? Here’s How You Can Revive Your Policy
Life Insurance Corporation (LIC) policies are among the most trusted financial instruments in India, offering guaranteed returns and low-risk investments for individuals seeking financial stability. However, many policyholders often wonder about the repercussions of missing premium payments or choosing to surrender their policies. From the surrender value you may receive to the revival of lapsed policies, understanding these aspects is crucial to making informed decisions about your financial future.
Consequences of Missing LIC Premium Payments
Failing to pay your LIC premiums can have varying consequences depending on the type of policy you hold and the duration of non-payment. For instance, term and whole-life insurance policies handle lapses differently
- Lapses and Loss of Benefits: If you fail to pay the premium within the stipulated time, your policy may lapse, resulting in a loss of benefits, including coverage.
- Claim Settlement Issues: Non-payment can complicate claim settlements, leaving your nominees without the promised financial support.
Understanding LIC Policy Surrender Value
Surrendering your LIC policy before its maturity date means forfeiting future benefits in exchange for a lump sum known as the surrender value. The surrender value varies based on the number of premiums paid and the policy’s duration.
- After Three Years: If you’ve paid premiums for at least three years, you are eligible to receive around 30% of the total premiums paid, excluding the first-year premium and any premiums paid for additional riders such as accidental benefits.
- After Ten Years or More: Policies with a premium payment record of ten years or more qualify for a guaranteed surrender value. This is calculated by multiplying the total premiums paid by the guaranteed surrender value factor and the accrued bonus by the surrender value factor.
One major drawback of surrendering an LIC policy is the loss of tax benefits. Under the Income Tax Act of 1961, tax exemptions on premiums and returns are only applicable if the policy is in force. Once surrendered, these benefits cease, potentially increasing your taxable income.
Grace Period for Premium Payment
The Insurance Regulatory and Development Authority of India (IRDAI) provides a grace period of up to 30 days for LIC policyholders to make their premium payments. This applies to all LIC insurance plans.
- Why the Grace Period Matters: The grace period allows policyholders to continue enjoying the coverage benefits despite minor delays in payment.
- Coverage During Grace Period: If an unforeseen incident occurs during this time, the nominees are entitled to full benefits, ensuring financial protection.
LIC offers a policy revival service that allows policyholders to reinstate expired policies, subject to certain conditions
- Eligibility for Revival: Policies that have lapsed due to non-payment for up to five years from the last premium payment date are eligible for revival.
- Revival Process: Policyholders must pay all overdue premiums along with a late fee to reactivate the policy.
- Policy-Specific Terms: Not all policies qualify for revival, and LIC sets specific conditions for reinstating lapsed policies.
Reviving a lapsed policy not only restores your coverage but also reinstates tax benefits and ensures the continued growth of bonuses. This makes it a valuable option for policyholders who have temporarily faced financial constraints but wish to secure their investments and benefits in the long term.
LIC policies offer a reliable safety net for policyholders, but understanding the implications of missing payments, surrendering policies, or reviving lapsed coverage is essential for optimising their benefits. By staying informed about surrender values, tax implications, and the revival process, you can ensure your LIC policy remains an effective tool for achieving financial stability and security.