When Does It Make Sense to Revive a Life Insurance Policy

Life insurance policies can sometimes lapse due to non-payment of premiums. However, there are circumstances under which it makes sense to revive a lapsed policy. Reviving a lapsed policy can prevent the erosion of capital and even increase the overall investment returns. This article explores the conditions under which reviving a life insurance policy is advantageous.

The Importance of Reviving a Lapsed Policy

When premiums have been paid for several years, reviving a lapsed policy can be highly beneficial. This is because the revived policy can accrue maturity benefits, leading to higher returns on your investment. Maturity benefits are the lump-sum payments you receive upon the maturity of the policy, which can significantly enhance your overall financial benefit.

In the absence of revival, the only payment you would receive is the surrender value. The surrender value is a fraction of the premium paid, often a much smaller amount and not sufficient to compensate for the initial investment. Product guidelines typically specify the minimum surrender value as a proportion of the premiums paid, and this proportion increases with the number of years you have been in the policy. Therefore, if several years of premiums have been paid, it makes sense to pay premiums for a few more years and protect the capital.

Marketing Campaigns and Opportunities for Revival

Insurers frequently run campaigns for the revival of lapsed policies. During such campaigns, they may waive penalties on lapsed policies, making it an effective opportunity for revival. However, it's important to note that insurers may still require a declaration of good health before approving the revival. This declaration serves as a precautionary measure to ensure the policyholder's continued eligibility for the insurance coverage.

Other Considerations for Reviving a Lapsed Policy

Several other factors can influence the decision to revive a lapsed policy:

Cost Comparison: The old lapsed policy might be a lot cheaper than a new one. By reviving the lapsed policy, you can save on the costs associated with establishing a new policy. This can be particularly advantageous if your existing policy offers terms that are still favorable. Health Concerns: If you have suspected health problems but haven't been officially diagnosed, reviving the lapsed policy can be a strategic move. This allows you to purchase coverage while there is still a window of opportunity, without immediate scrutiny of your health status. However, it's crucial to disclose any health concerns truthfully during the application process to avoid future complications. Qualification for Standard Rates: Reviving a lapsed policy might not allow you to qualify for standard rates with a new company if you haven't experienced any significant health issues. This is because insurers typically assess policies based on current health status and risk factors. Reviving an old policy without pre-existing conditions can provide a period of relief in terms of coverage and premiums.

Conclusion

Reviving a lapsed life insurance policy can be a wise financial decision under specific circumstances. It can offer the opportunity to gain maturity benefits, protect your capital, and even save on costs. However, it's important to consider the implications and seek professional advice before making any changes to your policy. Whether you choose to revive a lapsed policy or continue with your current one, ensuring comprehensive coverage and understanding your options is crucial for your financial security.