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Policy Revival & Lapse

Introduction

Policy Revival and Policy Lapse are core concepts in life insurance that determine whether an insurance policy remains active or becomes inactive due to non-payment of premiums. These topics are frequently tested in competitive exams such as LIC AAO, NIACL AO, UIIC AO, IBPS PO, and other insurance awareness sections. Understanding the grace period, lapse conditions, and revival rules is essential for accurate exam performance.

Pattern: Policy Revival & Lapse

Pattern

This pattern tests the candidate’s understanding of grace period rules, policy lapse due to non-payment of premium, and the conditions, time limits, and requirements for revival of a lapsed policy.

Key Concept:

A policy lapses when the premium is not paid within the prescribed grace period, causing the policy to become inactive and benefits to cease. Revival is the process of restoring a lapsed policy within the allowed revival period by paying overdue premiums with interest and submitting proof of insurability as required by the insurer and IRDAI guidelines.

Important Points:

  • Lapse = Occurs when the premium is not paid even after the expiry of the grace period.
  • Grace Period (Life Insurance) =
    • 15 days → Monthly premium mode
    • 30 days → Quarterly, Half-yearly, and Yearly premium modes
  • Revival Period = A lapsed life insurance policy can generally be revived within 5 years from the date of the first unpaid premium, subject to insurer terms and IRDAI regulations.
  • Revival Requirements = Payment of all overdue premiums with interest and submission of proof of insurability, if required.

Related Topics:

  • Grace Period
  • Paid-up Value
  • Policy Surrender
  • Free Look Period

Step-by-Step Example

Question

As per IRDAI guidelines, what happens if a life insurance premium is not paid even after the expiry of the grace period?

Options:

  • A. The policy automatically becomes paid-up
  • B. The policy lapses and benefits cease unless revived
  • C. The policy continues without interruption
  • D. The insurer pays the premium on behalf of the policyholder

Solution

  1. Step 1: Understand grace period expiry

    Grace period is the additional time allowed after the premium due date. If payment is not made within this period, the policy does not remain active.

  2. Step 2: Identify the consequence

    Non-payment even after the grace period results in policy lapse, meaning benefits are suspended.

  3. Step 3: Consider revival option

    A lapsed policy can be revived within the revival period by paying overdue premiums with interest and submitting proof of insurability.

  4. Final Answer:

    The policy lapses and benefits cease unless revived → Option B

  5. Quick Check:

    Lapse occurs after grace period expiry → correct logic ✅

Quick Variations

  • 1. Questions on grace period duration for different premium modes.
  • 2. Maximum revival period allowed under life insurance.
  • 3. Difference between lapse, paid-up, and surrender.
  • 4. Impact of lapse on claim eligibility.

Trick to Always Use

  • Grace Period: 15 days (monthly) | 30 days (others)
  • Revival: Up to 5 years + dues + interest + proof
  • Mnemonic: “GLIP” → Grace, Lapse, Interest, Proof

Summary

Summary

  • Policy lapses if premium is not paid within the grace period.
  • Grace period varies by premium mode in life insurance.
  • Lapsed policies can be revived within 5 years by fulfilling revival conditions.

Remember: “Grace protects temporarily; Revival restores permanently (within limits).”

Practice

(1/5)
1. What is the consequence if a life insurance premium is not paid even after the expiry of the grace period?
easy
A. The policy lapses and benefits cease
B. The policy automatically becomes paid-up
C. The policy continues without interruption
D. The insurer pays the premium on behalf of the policyholder

Solution

  1. Step 1: Understand grace period expiry

    The grace period allows extra time after the due date to pay the premium.

  2. Step 2: Identify the consequence

    If payment is not made even after the grace period, the policy lapses and benefits cease.

  3. Final Answer:

    The policy lapses and benefits cease → Option A

  4. Quick Check:

    No payment after grace period = lapse ✅
Hint: Grace over → policy lapses.
Common Mistakes: Assuming policy becomes paid-up automatically.
2. Within what maximum period can a lapsed life insurance policy generally be revived as per IRDAI-aligned exam standards?
easy
A. 1 year from the date of first unpaid premium
B. 2 years from the date of first unpaid premium
C. 5 years from the date of first unpaid premium
D. 10 years from the date of first unpaid premium

Solution

  1. Step 1: Recall revival period rule

    Life insurance policies allow revival within a defined maximum period.

  2. Step 2: Apply exam-safe IRDAI standard

    The generally accepted revival period is up to 5 years from the date of the first unpaid premium.

  3. Final Answer:

    5 years from the date of first unpaid premium → Option C

  4. Quick Check:

    5 years = standard revival window ✅
Hint: Revival window = 5 years.
Common Mistakes: Assuming revival period is limited to 2 years.
3. Which of the following is NOT a requirement for reviving a lapsed life insurance policy?
easy
A. Payment of overdue premiums with interest
B. Submission of proof of insurability
C. Application for revival within the revival period
D. Automatic restoration without any action

Solution

  1. Step 1: Identify revival conditions

    Revival requires payment of dues, interest, and proof of insurability within the revival period.

  2. Step 2: Eliminate incorrect option

    Automatic restoration without any action is not allowed.

  3. Final Answer:

    Automatic restoration without any action → Option D

  4. Quick Check:

    Revival is never automatic ✅
Hint: Revival always needs action + payment.
Common Mistakes: Assuming revival happens automatically.
4. What is the grace period allowed for payment of yearly premiums in life insurance policies?
medium
A. 15 days
B. 30 days
C. 45 days
D. 60 days

Solution

  1. Step 1: Recall grace period by premium mode

    Grace period differs based on premium frequency.

  2. Step 2: Apply life insurance rule

    Quarterly, half-yearly, and yearly premium modes have a 30-day grace period.

  3. Final Answer:

    30 days → Option B

  4. Quick Check:

    Yearly mode → 30 days ✅
Hint: Monthly = 15 days; Others = 30 days.
Common Mistakes: Assuming yearly premium has only 15 days grace.
5. Which of the following best distinguishes policy lapse from policy surrender?
medium
A. Lapse is due to non-payment; surrender is voluntary termination
B. Lapse is voluntary; surrender is involuntary
C. Lapse always gives refund; surrender never gives refund
D. Lapse cannot be revived; surrender can be revived

Solution

  1. Step 1: Define lapse and surrender

    Lapse occurs due to non-payment of premium, while surrender is voluntary termination by the policyholder.

  2. Final Answer:

    Lapse is due to non-payment; surrender is voluntary termination → Option A

  3. Quick Check:

    Non-payment vs voluntary exit = correct distinction ✅
Hint: Lapse = non-payment; Surrender = choice.
Common Mistakes: Reversing voluntary and involuntary meanings.

Mock Test

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