What Happens If, a SingSaver series, lays bare all the likely personal finance scenarios that could hit you at any stage of your life. After all, it never hurts to be prepared.
When you forget to pay your premiums, your insurance policy will lapse and you can lose any existing insurance coverage. Here’s what you can do and how you can prevent your policy from lapsing.
With the many different insurance policies that one can have, it is possible that you might miss a payment or two. Just like how missing a credit card bill payment comes with a late payment charge and interest fees, missing payment for insurance premiums also has its consequences.
Here’s what you can do if you forget to pay your premiums, and how you can prevent that from happening.
How does an insurance policy lapse?
An insurance policy can lapse when you, the policyholder, fail to pay the premium.
However, there is typically a short grace period of 30 days after the premium due date for you to make payment. If you also miss that short window, your insurance policy will lapse.
But what if you are unable to fork out the payment due to financial difficulties?
If you’re facing short-term cash flow problems, rather than allowing your insurance policy to lapse, you can consider the following options.
- Premium holiday
Check if your insurance policy allows for a premium holiday. This allows you to take a short break from paying your premiums, provided you meet the conditions required.
- Automatic Premium Loan
You could tap on the Automatic Premium Loan (APL) benefit that is offered by some insurance policies. This benefit ensures that the policy does not lapse, but instead deducts the premium from the cash value of the policy (assuming the policy has cash value). This will continue until the cash value has been exhausted, after which the policy will lapse, ensuring you have adequate protection, at the expense of the cash value of your policy
However, do note that APL comes with an interest rate, so it’s best to avoid this option, if possible. If you’re someone who tends to forget about the insurance policies you’ve purchased, you can check on your existing policies to see if APL has been activated.
- Downgrading or changing to a different plan
Finally, you can also check with your agent to see if you can downgrade your plan, or opt for a more wallet-friendly plan.
Why is a lapsed insurance policy a problem?
#1 Gap in coverage
Your insurance policy lapsing means that the insurance policy is no longer in force and you are no longer covered by the plan. Depending on the type of plan it is, this could mean that should you get hospitalised, injured, disabled, diagnosed with cancer, critical illnesses or even die, you and/or your beneficiaries would not enjoy any insurance coverage or payout.
This would be the scenario you’re exposed to, until you get yourself covered by another plan.
#2 Undergo medical underwriting all over again
For plans such as health insurance, if the policy has lapsed, you will have to undergo another round of medical underwriting when you apply for a new plan. Should you have developed any illnesses since purchasing the first policy, it will no longer be covered in the new plan/reinstated policy and is subject to loading (additional cost) or even a straight rejection.
What types of insurance policies will lapse?
Insurance policies that can lapse are typically longer term and have regular premiums (payments at regular intervals) — annually, biannually, quarterly or monthly. Examples of such insurance plans include life insurance, cancer insurance, critical illness insurance and health insurance.
Policies that are unlikely to lapse include single premium policies and annually renewable general insurance policies, such as personal accident plans, home insurance, maid insurance and travel insurance.
However, you should take note that these policies typically do not auto-renew, which means that you will not be covered unless you purchase a new plan or renew the plan for another year of coverage.
What happens if it lapses and what should you do?
If you think your insurance policy has lapsed, the first thing you should do is to check if this is really the case. You can check online via the insurance company’s web portal or mobile app. Alternatively, you can also check with your insurance agent.
Should you confirm that the insurance policy has lapsed, you should try to get the policy reinstated — this is the best-case scenario that would require you to check with your servicing agent to see if this is possible.
If reinstating the policy is not possible, you should quickly get a replacement insurance plan to cover yourself, before any unfortunate events befall you. This would require you to find a similar plan, or even apply for the same plan again. However, do note that this is likely to come at a higher cost, as premiums tend to go up with age.
If your priorities and coverage required has changed, you can make the most of this situation and get a plan that best suits your current needs.
How to prevent your insurance policy from lapsing
The lapse of an insurance policy is worrying for any policyholder as that means you now have a gap in your insurance coverage. Here are some actionable steps that can help you to prevent your insurance policy from lapsing.
- Set up recurring payments. You can set up a GIRO payment with your bank account, preferably one that you often use, check and keep sufficient money in.
- Do not ignore reminders. You are typically prompted to pay your premiums either via a letter, email or in-app reminder. If you have a responsible insurance agent (which you should), you could also receive a reminder from them to pay your premiums.
- Ensure that there’s enough money in the GIRO bank account. If the insurance company tries to charge from the bank account for payment and there isn't sufficient balance, you will receive a notification that the deduction was unsuccessful. Do take this notice seriously and top up your account before the next deduction, or directly transfer the money to the insurance company via a cheque or the AXS machine.
- Apply for auto-renewal. For annual renewable plans, you can consider applying for auto-renewal. Otherwise, you can always count on receiving a renewal notice close to the end of the coverage period, either by mail or email, that will prompt you to renew your plan.
- Put in calendar reminders. A manual way to remind yourself is to set reminders in your calendar to remind yourself to pay the premiums, or to check if a certain policy requires renewal.
Read these next:
Buying Insurance: Pros & Cons Of Limited Premium Payment Term
All The Insurance Terms And Lingo In Your Policy, Explained
Why You Should Nominate Beneficiaries For Your Insurance Policies & How To Nominate
5 Health Conditions That Will Affect Your Insurability
What Really Happens If You Skip Credit Card Bills, Loan & BNPL Payments