What does it mean for a policy to lapse?
When a life insurance policy “lapses,” it means that the policyholder or designated payor has not paid one or more required premium payments. Premium payments are required to keep a life insurance policy in force. Policies may require a monthly, semi-annual, or annual payment of a premium.
Most, but not all, states require notices with specific information (designated via state statute) to be sent to the designated payor of the policy when a premium has been missed and a policy is in danger of lapsing. Failure to fulfill these payments can lead to termination of the policy entirely. If the company has not complied with the notice requirements of the state, however, the policy may still be enforced, even if years have passed since the last payment was made.
Illness-Related Insurance Lapses
A common scenario that leads to a policy lapsing is when a policyowner in charge of paying the policy’s premiums falls seriously ill or is facing a decline in mental health. These individuals often miss their premium payments due to their illness. Courts have been willing to take this scenario into account, especially if the policyowner/payor has loyally paid their premium up until the time that he fell ill. The Boonswang Law Firm has extensive experience dealing with these scenarios and have found tremendous success with these illness-related lapse cases.
Reinstating Lapsed Policies
If your policy lapses, there can also be an option to apply for reinstatement of the policy. When one applies for reinstatement, however, the insurance company gets the opportunity to review your most recent medical records to reconsider whether they would agree to insure you. If your application for reinstatement is accepted, this also resets your two-year contestability period. Thus, if the insured dies within two (2) years of the effective date of the reinstated policy, the insurance company may contest or deny payment of the death benefit based on any misrepresentation on the reinstatement application.
Since life insurance policy proceeds are assets upon which many families rely after a loved one has passed on, there are laws in place mandating a grace period when a lapse occurs. Once a premium payment is missed, the grace period begins. Therefore, if the insured dies within the grace period (usually 30 days), the insurer may still be required to pay the death benefit. The grace period also allows time for someone who missed a payment for financial, health, or other reasons to catch up and make the payment before the policy lapses. Once the grace period is over, however, the policy is considered lapsed and the insurance company will deny payment of the death benefit.
An Insurance Lawyer Can Help With Lapsed-Policy Claims
When a beneficiary does not get paid after a life insurance policy lapses, the beneficiary should contact the life insurance lawyers at The Boonswang Law Firm. Many states require insurance companies to notify policyowners that they have missed one or more premium payments. If an insurance company has not followed the lapse notice laws of your state, you may still be eligible to receive the policy’s benefits. Our attorneys are very well-versed in analyzing the lapse notice laws of states throughout the country. Our concentration in this area has helped us hold insurance companies accountable when they have not complied with the law, bringing countless families the financial security that they need by obtaining death benefits that are rightfully theirs.