What You Need to Know About A Lapsed Life Insurance Policy and Your Claim
Missing a life insurance premium payment on term life insurance can have devastating results for your family. If the insurance company does not receive your premium payment, that is the equivalent of giving the company your cancellation notice. If you die before bringing your payments current, the insurance company probably does not have to pay the death benefit.
What Happens if You Accidentally Miss an Insurance Policy Premium Payment?
If you miss a premium payment due date and realize it soon afterward, usually there are no repercussions because life insurance companies provide a grace period for policyholders. The grace period is usually 30 days and allows an insured to make a late payment without losing insurance coverage.
The payment must be received and applied to the premium within the grace period. Every insurance company has its own rules about late payments, so be sure you know what your company requires. If the policyholder dies within the grace period, the beneficiary’s life insurance claim will not be denied as long as the premium is paid within the grace period.
What Does it Mean for a Life Insurance Policy to “Lapse?”
If a missed premium payment is not received within the grace period, the policy “lapses.” This means that the policy is cancelled for failure to make payments. Life insurance claims will usually not be paid after a policy has lapsed.
Can I Reinstate My Life Insurance Policy After it Has Lapsed?
Even after a policy has lapsed, it is possible for a policyholder to resume being insured under the lapsed policy — this is called reinstatement. Reinstatement policies vary with each insurance company. In general, there will be a time period in which the policy can be reinstated (often five years). The policyholder will be required to complete a reinstatement application that is similar to an initial insurance application.
The insurance company will check to see if there have been any changes to the insured’s health status since the life insurance policy was first issued. Information about health status may be collected through a health statement, review of medical records or a new medical exam.
Before a life insurance policy is reinstated, the policyholder must pay all premiums that should have been paid from the end of the grace period. So, if three years have passed between the time the policy lapsed and the time the policy is reinstated, the insured must pay three years’ worth of premiums. If the policyholder dies before the past due premiums are applied to the policy, a life insurance claim will likely be denied.
The reinstatement of a life insurance policy usually restarts the two-year contestability period. If the policyholder dies within two years of the reinstatement, the insurance company can investigate the application process to see if any part of the application involved misstatements or misrepresentations.
Some insurance companies allow the new contestability period to address concerns about the original application, and some limit concerns to the reinstatement application. If material misstatements are discovered, even if the original policy was issued years before, the beneficiary’s life insurance claim can be denied.
Insurance attorney Chad G. Boonswang has helped life insurance beneficiaries across the country respond to a denied life insurance claim. Call him today at 1-855-865-4335 to find out how he can help you.