If you need life insurance, the last thing you want is for your policy to lapse. Not only do your loved ones lose the protection the policy affords, but you may have to pay more to reinstate your policy or get a new policy.
If you forget or can’t make your payment on time for another reason, understanding your options is critical to making sure you remain covered.
About Your Grace Period
If you miss your payment due date, all is not lost. If you have a permanent life insurance policy with cash value, the insurance company may use it to pay your premium. But even if you have a term policy, you still have time.
Life insurance companies give you a grace period — typically about 30 days, depending on your state’s insurance laws — to catch back up with your premiums. Just remember that you’ll also need to make the next month’s payment.
If you die during the grace period, the insurance company will even pay out the death benefit, even if you haven’t yet made up your payment. But if you go past the grace period without making the payment, the policy will lapse.
Reinstating Your Life Insurance Policy
If your policy lapses, you can apply to have it reinstated. You may need to meet certain requirements, however, depending on when you initiate the reinstatement process.
For example, if it’s within 30 days of the policy lapsing, you may be able to reinstate it by just catching up on your premiums. But if it goes longer than that, the insurance company may require you to provide proof of insurability.
This means that if your health has changed since you originally bought the policy, you may be required to get a new policy with a higher premium. Depending on the health issue, the insurance company could even decline your request altogether.
Keep in mind that different insurance companies have different rules when it comes to reinstatement. So, find out what yours is before it’s too late.
Should You Replace Your Policy Instead?
If you’re in good health, you may think that replacing your life insurance policy is better than reinstating. After all, you don’t have to follow the insurance company’s rules to get the policy reinstated.
But even if your health hasn’t changed, your premium may still go up simply because you’re older than when you first bought the policy.
That said, if your life insurance policy lapses, do a little comparison shopping to see if there are any life insurance companies that can offer you a lower premium than what you were paying on your lapsed policy. This process could be especially helpful if you didn’t shop around when you first bought the policy.
How To Avoid A Policy Lapse
While you have options if your life insurance policy lapses, the best plan is to avoid a lapse altogether.
With lapses due to non-payment, preventing one can be easy. Start by setting up automatic payments so that you don’t have to remember to pay every month. Also, make sure that you have overdraft protection on your checking account so that a payment doesn’t get returned due to insufficient funds.
If you change your bank account, give the life insurance company the information from your new account so it can update your payment information. You can usually do this by yourself in your online account.
If you have a permanent life insurance policy, also keep an eye on your cash value balance, especially if it's a universal life policy that doesn’t offer guaranteed growth. If it gets low, you can increase your premium payment to replenish your cash-value account.
The Bottom Line
If you have a term life insurance policy, make sure to keep up with your payments to avoid a policy lapse. And if you have a whole life or universal life policy, keep an eye on your cash value.
If your life insurance policy does lapse, contact the insurance company to learn about its reinstatement policy. Because reinstatement can include extra requirements, however, also consider replacing the policy with a new one.
The important thing is to ensure that you and your loved ones remain protected in case something bad happens to you.