When you buy a life insurance policy, the insurance company’s obligation to pay out is contingent upon whether you have paid your premiums. In other words, simply put, if you do not pay the insurance company, they will not pay your beneficiaries.

But can you get money back from a lapsed life insurance policy?  In some cases, yes. First let’s talk about what happens when the life insurance premiums are not paid.

How long do you have to reinstate a lapsed life insurance policy?

Insurance companies typically have a “grace period” for making late payments, usually around a month from the due date. If you fail to pay on time, you can make up your payment (and remain covered during this period). Be sure to check with your insurance provider so you know the length of your policy’s “grace period.”

What happens if your life insurance lapses?

 If you do not pay within the grace period of your life insurance policy, the policy will “lapse” (i.e. you won’t be covered.) Even if you have been making premium payments diligently for decades, if you miss one premium payment beyond the designated grace period, your policy is not in effect. If you die a day after your policy lapses, your beneficiary’s claim will be denied.

What happens if I die within the grace period?

We can likely get your beneficiary paid. It is important for them to know the date of death, the date of last premium payment made, and have any notices sent to you on hand.

Can you get money back from a lapsed life insurance policy?

Perhaps – it depends on your form of coverage.

Term life insurance

If you have term life insurance, your options are limited. The policy will lapse, and future payments will not restart coverage. If you would like to “reinstate” your policy, you must contact your insurance provider. Generally, companies require you to fill out another application and let them know if your health has changed. Additionally, your insurance company may require a new medical exam before reinstating your policy, depending on how long it has been since the “grace period” ended.

Upon reinstating your policy, you will have to retroactively pay the premiums for the time your coverage was lapsed. This means that the longer you wait after your coverage lapses, the more premiums you will have to pay before you reinstate your previous policy.

Permanent life insurance

Permanent life insurance is more expensive than term life insurance, but it is also more forgiving of nonpayment. As with term life insurance, one option is to “reinstate” your previous policy by reapplying and retroactively paying the premiums you missed. If you cannot pay the required amount for reinstatement, however, there are other choices available.

Many permanent life insurance policies combine a “death benefit” (i.e. how much the beneficiary gets paid if/when the owner dies), as well as a “cash value.” This cash value functions as a savings investment separate from the death benefit. In this case, you may have the option to “cash out” your life insurance by withdrawing the policy’s cash value (i.e. its accumulated savings) when your death benefit coverage lapses.

Lapsed Policy Refund

Some insurance policies include a nonforfeiture clause, which means that if you stop paying premiums, you still receive some sort of benefit. You can think of this as a lapsed policy refund. If your coverage lapses, the insurance company will refund part of your premium payments and/or pay you the policy’s cash value. With some policies, your coverage will not lapse in case of nonpayment; instead, your policy will remain in place but with a reduced death benefit calculated as a percentage of your paid premiums.

Can my beneficiary can get paid from my lapsed policy?

If you never received notice of the lapse, or received inadequate notice under the law, in certain circumstances we can get the beneficiary paid the death benefits. For example, where the insured fell into a comatose state and the family never received notice that premiums were past due, only notice of lapse and termination, we were able to get the beneficiary paid.

If you have a lapsed life insurance policy and are unsure of your options, the best thing to do is contact your insurance agent and ask for details regarding your policy’s grace period, whether your lapsed life insurance policy can be reinstated, and whether there are applicable nonforfeiture provisions.

If you are the beneficiary of a lapsed life insurance policy, you also want copies of any notices sent to the insured. It is best to get in contact with an experienced life insurance lawyer to evaluate whether your claim can be paid.