EVERY year, thousands of life insurance policies lapse. These could be for a variety of reasons. Policyholders may not pay the renewal premium either because of a change in their financial circumstances, or because they discover later that the policy was mis-sold to them and it does not meet their requirements. They may also inadvertently skip renewals because of a job transfer. While lapsed policies result in a loss for policyholders, contrary to popular perception they are also a drag on the books of life insurance companies. This is why life insurers often make special efforts to revive lapsed policies.

Typically, a policy can be revived within six months of lapsation through a simple revival - payment of outstanding premium, along with reinstatement charges, if any. "If the lapse has occurred more than six months ago, a personal health declaration needs to be submitted. The policy is then revived subject to underwriting decisions. Additional medicals may be triggered depending on underwriting decision. The policy can be revived within one, two or five years of lapsation depending on the terms and conditions of the policy, as specified in the policy document," says VV Balaji, senior vice-president, customer service and operations, ICICI Prudential Life Insurance. These terms and conditions also vary along with the size of the policy.

While reviving a policy and continuing with the protection cover seems like a sensible idea, particularly in uncertain times like these when life insurance seems indispensable, you need to carry out a cost-benefit analysis before going ahead. You need to ascertain whether the arrears payable by you outweigh the benefits offered by the policy. Says Harsh Roongta, CEO, "Reviving a lapsed policy will make sense only if it is an investment-oriented policy as it will help you reap the returns on investments made. Also, you should consider reviving a policy only if it has acquired the surrender value." Financial planner Kartik Jhaveri adds, "The decision regarding revival will have to be taken based on the policyholder's financial situation, goals and insurance requirement. If the protection cover is worthwhile, you can consider reviving the policy. The other parameter that would play a role is the amount of premium paid till date." For instance, reviving a policy entailing a premium of Rs 5,000 per annum may not be worth considering, but if you have shelled out a substantial amount, say Rs 75,000 per annum, in the form of premium for around three years, you could consider reviving the same.

This apart, the time elapsed since the lapse also needs to be taken into account. "It is not advisable to revive a policy which is in lapsed condition for more than three years as the policyholder will have to pay huge amount towards the arrears of premium and interest. This is despite the fact that the insurance company was not at risk during the period the policy was in lapsed condition. It is better to go in for a new policy as per his/her financial needs. However, if the policy guarantees far exceed the interest component, the person may opt for revival," suggests Malathi Narasimhan, deputy COO, SBI Life Insurance.

Many a time, policyholders claim to have been victims of mis-selling by insurance agents, who talk them into buy unit-linked insurance plans (ULIP), which may not be congruent with their investment or protection objectives. Since ULIP is a long-term product, many find wriggling out of it at an early stage quite difficult due to the quantum of money committed by them during the initial years. However, instead of continuing with such policies, it is better to exit the same and redirect the premium amount to a policy that helps you achieve your goals. "In the case of mismatch with objectives, an individual can continue to pay the premiums till it acquires the paid-up value and go in for new policy as per his/her requirements," advises Ms Narasimhan. Also, if the reason for the lapsation was inability to pay premiums regularly, you need to make sure that you can afford the premiums this time round.