Life Insurance Policies – Lapse or Surrender

By Kabungo Chishiba

As an Authority mandated to protect the interest of policy holders, we get a lot of calls from members of the Public seeking clarification on insurance policies.

Let us use this example. Mrs Banda had a four (4) year with profit policy with a named Life Insurance company. She faithfully paid her premiums for 20 months until she lost her job and did not have a steady flow of income. The insurance company however, did not inform her that her policy had lapsed due to non-payment of premium. A few months later, she found a new job and wanted to continue with the policy. The insurance company informed her that the policy had lapsed resulting in her forfeiting K9000 saved over 20 months.

What does it mean to have a lapsed policy? What is the difference between lapses and surrenders? Is it possible to get a refund once a policyholder like Mrs Banda is unable to continue with the policy due to circumstances beyond her control?

A policy typically lapses when a policyholder has not paid premiums to assure future contract benefits as outlined in the life insurance contract. When the policy lapses the contract for future benefits is no longer active but not void. In many cases, the lapsed policy can be reinstated (subject to terms and conditions) if the premium is paid and made current.

A surrender on the other hand is a full cancellation of a life policy. The insurance policy becomes void and the policyholder “surrenders” any future contract benefits. If any value often referred to as “cash value” is available at the time of cancellation, the policyholder will receive the amount. The policyholder may be charged other surrender charges stipulated in the contract. A surrender policy cannot be reinstated.

It should be noted that insurance contracts will specify conditions when a lapsed policy could be reinstated, if premiums are paid and made current. Similarly, the contract will also specify a period when a policyholder can surrender or cancel a policy and claim a cash value if available. What determines the availability of a cash value is a period a policyholder paid premium and the terms stipulated in the contract.

From our definition and explanation above, Mrs Bandas’ policy was inactive but not void, and she could therefore, reinstate it if the contract allows.

Insurers can only guarantee to settle with-profit long term policies if premiums are invested and a return is realized. For policies like, Mrs Banda’s the insurer must receive premium for a specified minimum period and invest for a certain period to guarantee a future return on the policy. This implies that Mrs Banda has to pay premium for a period specified in the contract for her to surrender or lapse and reinstate the policy.

To avoid unnecessary complication in an event of a lapse or surrender, a policy holder must always be availed with a contract of insurance. Insurers or their representatives should avail the contracts with other policy documents at the inception of cover. The insurer has a duty to disclose the terms and conditions of a policy in a clear and non-ambiguous format for an ordinary citizen to understand. This is in compliance with Section 75 of the Insurance Act. The Authority has issued further guidance to regulated entities on the need to issue key facts statement at inception of cover.

In an event of death of the policy holder, the policy should clearly provide benefits to the next of kin. The beneficiary should be named in the policy in compliance with Section 82 of the Insurance Act.

An Insurer acting in good faith should always notify the policy holder in an event of a lapse. The policyholders like Mrs Banda also have a duty to notify the insurers if they will not be able to pay premium due loss of income. Jane should have notified the insurer and sought other options i.e. to surrender the policy or lapse and reinstate later depending on the terms of the contract.

With so much uncertainty in the labor market, insurers should consider designing polices that are flexible and more responsive to people’s economic needs. Insurers should demonstrate the tangible effects that a life policy has by clearly responding to peoples economic needs. The number of policies lapsing due to people losing their regular income have increased over the years and will worsen due to the Covid-19 pendemic.

The Authority has observed over the years that most policies on the Zambian market are designed for people in the formal sector and yet majority of citizens are in the informal sector. Insurers should respond and make policies more flexible to capture majority citizens with irregular incomes in the informal sector.

The increased lapses and surrenders could be attributed to the design of life policies and policyholders not understanding the terms of life policies. The challenge therefore to policy holders is – read and understand the terms of the life policy. Where you are not clear kindly contact the insurance company and seek clarification. Life insurers on the other hand should always strive to make the effects of intangible insurance services they provide tangible and meaningful to citizens.

For comments or questions, send us an email at pia@ or follow us on our Facebook page, Pensions and Insurance Authority.

You can also call us on 211-251 401/5 or 0977-335809 or 0965-255136.

For complaints, kindly use the following details:

Pensions-related complaints: Mobile: 0950-136663, Email: pensions@

Insurance-related complaints: Mobile: 0950-136662, Email:

The author of this article is a Manager in the Insurance Market Conduct Unit at Pensions and Insurance Authority.