What’s in the blog?
This blog highlights why letting your insurance policy lapse can lead to bigger costs, reduced benefits, or even loss of coverage. It explains how lapses happen, what penalties apply, and how to avoid them by staying on top of premium payments and policy terms.
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Many people believe that once they’re covered through their employer or a different policy, they no longer need their personal health insurance. And it’s quite understandable, if you’re in good health and don’t foresee any major medical issues, why continue paying premiums?
While it might seem like a good decision in the short term, discontinuing your health insurance without fully understanding the long-term consequences can lead to significant financial burdens.
Allow me to explain why keeping your coverage active, even when you think you don’t need it, is one of the smartest moves you can make for your future.
Reasons You Should Not Let Your Insurance Lapse
Letting go of your health insurance might feel like an easy financial decision, especially when you believe you have other coverage or don’t foresee any health issues. However, life is unpredictable, and once a policy lapses, reinstating the same level of protection isn’t always simple. Before you make that decision, consider the long-term impact it can have on your financial security.
A Lapsed Policy Means You Lose Your Hard-Earned Benefits
Health insurance is designed to reward long-term policyholders. The longer you maintain coverage, the more benefits you enjoy. The loyalty benefits of holding an insurance long-term include –
- shorter waiting periods,
- cumulative bonuses, and
- higher claim limits.
On the other hand, when you let your policy lapse:
- You lose all accumulated benefits.
- You have to restart waiting periods for pre-existing conditions.
- If you develop new medical issues, insurers may either exclude them from coverage or charge higher premiums.
“Even a short lapse can set you back years in terms of financial protection”.
A Lapsed Policy Means You Have to Go Through Waiting Periods Once Again
Most policies come with waiting periods:
- 30 days for general coverage (excluding accidents).
- 2-4 years for pre-existing conditions like diabetes, asthma, or heart disease.
If you’ve maintained an active policy for years, you likely already cleared these waiting periods. But if you lapse and buy a fresh policy later, you’ll have to go through them all over again.
This means that if a medical emergency strikes soon after getting a new policy, you may not have coverage. You will then have to bear all the hospitalization and medical bills on your own.
A Lapsed Policy Means Higher Chance of Error in ‘Full Disclosure’
Health insurance requires transparency. When buying a new policy, you must disclose your medical history, including past surgeries and chronic conditions.
Many people mistakenly assume that minor past treatments don’t matter, only to find their claims rejected later due to “non-disclosure.” When you lapse and reapply, insurers reassess your health profile, and anything left undisclosed in the past can become an issue.
A continuous policy avoids this complication, ensuring your claims are processed smoothly.
A Lapsed Policy Means Higher Premium for the Same Protection
Insurance premiums increase as you age, and pre-existing conditions can make coverage more expensive. By maintaining an existing policy, you can lock in lower premiums. But if you let it lapse and buy a new one later, you may have to pay significantly higher rates based on your updated health profile.
Why pay more for the same protection when a simple renewal could keep costs down?
Insightful Experience
One of our clients, a young professional, had a health policy since 2017. We were happy to have a thoughtful client like him who understood the importance of having a health insurance policy from a young age. Everything was going great till the gentleman decided to stop paying the premium for his policy without discussing the reason with us.
We tried our best to connect with him and understand what was happening but we didn’t get any response.
Fast forward to 2024, we got a panicked call from the same client. He wanted us to anyhow revive his old health insurance policy as he got dengue and the hospital bill was going to be hefty. As much as we wanted, we had no option to revive his old policy with the same terms after a gap of 2 years. It was mandatory to get a fresh policy.
The said client was someone who understood the importance of health insurance and that’s why he got insured himself in 2017 only. Turned out he had moved to US and his company was giving him good medical coverage. That’s where he miscalculated his steps and let his personal health insurance lapse as a cost-cutting measure. For some reason, he had to leave that company and move back to India where he had no such coverage.
We got a fresh health insurance policy for him but he had lost so many benefits that his earlier policy could have given him. He needed to complete a new waiting period. In his earlier policy, there were no pre-existing condition but in the new one, he had already gone through ankle surgery. In fact, when we asked him he missed to tell about the surgery. He could only tell when we reemphasized that we need to know any big or small conditions and hospitalization etc.
He could have saved so much if only he conveyed his doubt clearly to our team…
What to Do Instead to save your insurance policy?
I understand it is quite natural to think that letting a policy lapse is a good ‘money saving’ decision when you get a coverage from your employer or any other policy. But, if you look closely you’ll understand that you actually waste the premiums you have already paid and you also make yourself vulnerable to future uncertainties by letting your policy lapse.
Reviewing, Not Cancelling, is the Smarter Choice
If your current policy feels expensive or inadequate, don’t cancel it outright. If you feel you don’t need it, don’t simply stop paying the premiums. Instead, review it with an financial advisor. You may have options like:
- Adjusting coverage to suit your needs.
- Porting your policy to another insurer for better benefits.
- Adding riders instead of starting from scratch.
Keeping insurance coverage, even if modified, is always better than restarting later.
My Take
Insurance is not an expenditure, it’s a shield to protect you from emergencies. It’s not a bill that you can stop paying as a cost cutting measure. Letting your policy lapse is an invitation to greater expense and uncertainty down the line.
If you have any doubt about continuing any of your policies you should get in touch with a trusted financial advisor. If you want to talk to us, team MoneyAnna is always ready to do a policy review and guide you like an elder brother. We care for you and your finances.
