What Happens if You Stop Paying LIC Premiums?

Life Insurance Corporation (LIC) of India is the country’s largest life insurer, providing coverage to millions of policyholders. If you have an LIC policy, it’s crucial to pay premiums on time to keep your valuable coverage active. But what happens if you miss payments or stop paying LIC premiums altogether?

There can be serious consequences, but LIC also offers some flexibility in case of nonpayment. Let’s look at key things to know about lapsed LIC policies and your options if unable to pay premiums.

LIC Policy Grace Period

LIC provides a grace period for premium payments on all policies. The grace period allows some leeway to pay overdue premiums before the policy lapses.

• For yearly, half-yearly, or quarterly premium modes, the grace period is 30 days.

• For monthly premium mode, the grace period is 15 days.

So if you miss a premium due date, you have 15-30 days to pay before LIC takes action on the policy. Take advantage of the grace period to avoid disruption of your coverage.

Policy Lapse After Grace Period

If you still have not paid the overdue premium after the 15 or 30 day grace period, LIC will lapse your policy. This means it will be terminated due to nonpayment.

Once lapsed, the policy immediately stops providing insurance coverage. You will lose policy benefits like life insurance protection, cash value accumulation, dividends, etc.

So a lapsed policy no longer offers your beneficiaries a death benefit payout. Avoid letting your policy lapse by monitoring due dates and paying all premiums within the grace period.

Policy Revival Option

The good news is LIC allows you to request reinstatement or “revival” of a lapsed policy within certain time limits. To revive a lapsed LIC policy:

• You must apply for revival within 5 years from the date of first unpaid premium.

• All back premiums must be paid, along with interest charged at rates set by LIC.

• You may need to provide current health statements and undergo a medical exam.

• LIC reserves right to accept or reject revival requests based on underwriting.

Revival restores your original policy benefits and coverage as if the lapse never occurred. LIC typically approves revival if health status has not changed. But revival could be denied due to declines in health.

Alternatives if Revival is Denied

If LIC rejects your request to revive a lapsed policy, you may still have options:

• Term Conversion: Convert to a reduced paid-up term insurance for coverage equal to surrender value.

• Paid-Up Policy: Change lapsed policy to reduced paid-up insurance for reduced death benefit amount.

These options allow you to retain limited coverage rather than losing the policy entirely. While not ideal, they offer some continuity of life insurance.

Policy Surrender After Lapse

Beyond the 5-year revival period, the only option with a lapsed LIC policy is to surrender it and receive the surrender value payout.

The surrender value equals all premiums paid less costs of insurance charges, taxes, and expenses. It does not include dividends or interest earned.

Surrendering the lapsed policy terminates life insurance coverage permanently. You’ll receive some monetary compensation but lose policy benefits.

Impacts of Lapses and Revivals

It’s important to understand how lapses and revivals may impact your LIC policy:

• Rider Benefits – Any riders like critical illness or disability will also lapse if the base policy lapses. They can only be restored with policy revival.

• Future Premiums – After revival, future premiums may be increased based on underwriting assessment of change in health status.

• Waiting Periods – Initial waiting periods for coverage of certain conditions may start over after a lapsed policy is revived.

• Dividends – Lapsed period dividends will be forfeited even after policy revival. Only future dividends will resume.

• Tax Benefits – You cannot claim income tax deductions for premiums paid during lapsed period, even if policy is later revived.

Understand these ramifications before letting an LIC policy lapse due to nonpayment. Stay up-to-date on premiums to avoid coverage disruptions.

Steps to Prevent Lapsed LIC Policies

Lapsed LIC policies lead to headaches and coverage gaps. Avoid this scenario by taking proactive steps:

• Set reminders for premium due dates to prevent forgetting payments. Mark your calendar or set automated mobile alerts in advance.

• Select ideal premium mode – Opt for annual payments to have fewer due dates to track. Quarterly or monthly premiums increase lapse risk.

• Review finances regularly and budget for upcoming insurance premiums like any other important expense. Don’t let premiums sneak up on you.

• Pay online using LIC’s portal for convenience and payment confirmation. Or use standing instructions through your bank.

• Store policy documents safely so you can easily reference grace period rules and revival provisions if ever needed.

Staying organized and planning ahead goes a long way towards preventing policy lapses!

Options if Unable to Afford Premiums

If you’re simply unable to afford LIC premium payments long-term due to financial hardship, you have a few options:

• Switch to lower premium policy – Consider reducing life insurance coverage to a more affordable level through LIC.

• Policy loan – Borrow against cash value of permanent policies to pay premiums and avoid lapse.

• Non-forfeiture options – As mentioned above, convert to reduced paid-up options to maintain limited protection.

• Surrender policy – Last resort is cancelling the policy and withdrawing surrender value, then shopping for new term life insurance if needed later.

Discuss your situation honestly with an LIC agent. They can explore appropriate solutions to avoid losing insurance coverage entirely during cash flow problems.

Consequences of Stopping LIC Premium Payments

To summarize, here are the major implications of stopping LIC premium payments:

• Life insurance coverage will lapse after grace period, eliminating protection for your family.

• Lapsed policies can be revived within 5 years by paying back premiums plus interest.

• Revival may be denied based on health changes since lapse, leaving fewer options.

• Without revival, only choices are reduced paid-up policy or surrendering for cash value.

• Riders and dividends stop during lapse. Original terms may change after revival.

• Tax benefits cannot be claimed for lapsed period premiums, even if policy is later revived.

A lapsed LIC policy can often be restored, but it’s best to prevent lapsing in the first place through diligent premium payments. Keep your insurance coverage active and avoid the hassles of policy revival.

The Takeaway

Paying LIC premiums on time is crucial to maintain your policy benefits. If you face financial constraints, explore options like policy loans, reduced coverage, or changing premium mode before stopping payments.

LIC provides a grace period and revival option, but it’s best to avoid lapsing. Stay organized on premium due dates and proactively address potential nonpayment issues.Keep your LIC policy active to ensure valuable life insurance protection remains in place for your loved ones.