What To Do If Your Life Insurance Policy Lapses

Life insurance is the best way to ensure your loved ones will be financially stable if you’re taken from them earlier than expected. Your death benefits will provide relief to your beneficiaries in an already emotionally difficult time. The payout can help cover funeral costs, upcoming mortgage payments, or other outstanding debts. However, the benefits of life insurance are worthless if the policy lapses. A missed premium payment can leave your family vulnerable, but there is something you can do if your life insurance policy lapses if you act within a certain timeframe.

What Happens When A Policy Lapses?

A number of life events may have caused you to miss payment on your life insurance premium. Regardless of the reason, what’s more important is that you address the policy lapse as quickly as possible.

Unlike auto or homeowners insurance, which lapses as soon as you miss a payment, there is a grace period with life insurance, depending on what type of policy you have.

• Permanent Life Insurance: For this type of policy – whole life, universal life, and variable universal life – it is possible for the cash surrender value to build up. That reserve will be used to cover any missed premium payments unless the policy owner instructs otherwise. When the cash surrender value is used, if the owner doesn’t pick up on the premium payments, the policy is considered lapsed.

• Term Life Insurance: There is no cash value on these policies. When a premium payment is missed on term life insurance, the policy falls into a grace period, but will lapse if no payment is rendered during that time.

The grace period with life insurance varies by state and provider. While the standard time frame is 30 days, you’ll want to talk with your life insurance agent to determine the forgiveness period of your policy. During the grace period, in most cases, the provider will still pay the death benefits if the owner dies.

Reinstate A Life Insurance Policy

If your life insurance policy lapses, providers are not legally obligated to allow you to reinstate the coverage plan, but many will offer that opportunity if you immediately catch up on payments and meet other criteria. Each insurance company gets to set its own rules regarding reinstating a policy, so check with you agent to see if reinstatement is possible and what the requirements are.

The steps to reinstate life insurance are different depending on how much time has passed since the policy lapsed. Again, each company is different, but here are some common scenarios you may face if your life insurance policy lapses.

• 30 Days or Less: Most providers will allow you to reinstate the policy without any underwriting or questions.

• 30 Days to Six Months: You’ll likely have to fill out a reinstatement application and answer a few health questions. Most insurers will also require you to sign documents that state no major changes to your health have occurred.

• 90 Days to 5 Years: It’s best to check with your specific insurance company. Requirements will vary depending on where you fall within this timeline.

In nearly any case, reinstating a life insurance policy is more cost effective that purchasing a new one, so be sure to explore this option before moving on with a new policy.