Surrender value of a life insurance policy is described as the present value of a future payment payable on the date of maturity or as excess of premium collected in the early years of a policy on account of level premium being charged.
Reinstatement
Surrender action on a policy is an end-action and therefore many policyholders take it for granted that nothing further could be done on the policy and they suffer the loss silently. It is good to know that a surrender action could be reversed by a ‘reinstatement’ of the policy into the insurers books again. This is generally allowed by life insurance companies like LIC.
Reinstatement of a policy is not its revival. Revival is an action by which a lapsed policy is brought back to ‘in-force’ position by paying arrears of premium etc. In reinstatement, a policy that has gone out of the books of the insurer is brought back.
Automatic reinstatement
Reinstatement of a life policy is automatic under the following situations. One, when the policyholder applied for surrender, submitted the surrender discharge voucher to the insurer’s office along with the policy bond, but died before the actual payment was made.
Two, when the insurer sent the surrender value to the policyholder either by money order or by cheque etc and the policyholder died before the payment reached him. There could also be a situation when the policyholder received the surrender value cheque but died before encashing it. In all the above situations, it is the duty of the legal heir to bring the fact of death of the life assured to the insurer who will then reverse the surrender action and reinstate the policy and settle full death claim on the policy in favour of the legal heir.
Reinstatement on request
The policyholder applied for surrender of the policy and received the payment. However, he feels the surrender value paid to him is too low and he is a loser financially and wished if it were possible to cancel the surrender action. Well, he can apply for the reinstatement of the policy, generally within a period of six months of the surrender action.
When he does so, the life insurance company will check as to why a policyholder who opted out of the contract has preferred to return; is there a sudden fall in the health of the life assured or whether he perceives an increased risk on his life. Hence, the insurer may insist on declaration of good health from the life assured and medical report on his life before reinstatement of the policy. The cancellation of the policy may be nullified through an endorsement on the policy or by issue of a fresh policy bond on reinstatement.
Every surrendered policy may not be allowed to be reinstated; unit-linked insurance policies, annuity policies, health insurance policies and some other specified plans are not generally reinstated.
Reinstatement allows for an easy solution if one feels that the decision to surrender one’s policy was a wrong one. In case of death of the life assured as described above, full death benefits are made available to the legal heirs provided the fact of death is brought to the notice of the insurer. Loss is nullified and the policy continues on its full value when reinstatement is allowed on policyholder’s request.
( The writer is President, Society for Promotion of Legal and Insurance Awareness .)