How To: Avoid a Life Insurance Policy Lapse
Missing a payment on your life insurance policy can cause quite a headache, if not resolved in a timely manner.
No one wants to hear that their policy has lapsed, and that they are no longer covered.
This article is a quick how-to guide on what steps you can take to ensure that your policy doesn't lapse, and what to do if it does.
Here’s what we'll cover in this post:
Quick Article Guide
Here’s what we'll cover in this post:
Enacting Your Policy
Once your policy is activated, otherwise known as “in-force”, then all the rights and privileges are valid starting on your issue date.
Most all insurers will allow four methods of payments in which your premiums can be paid:
By law, all life insurance companies are required to grant the insured a 31-day grace period in which a payment can be made to bring the policy back into good standing. If the payment is missed for more than 31 days, the policy will lapse.
The bad news is, not everyone check their mail frequently, and this notification could be very easily missed.
How to Avoid the Lapse
Here are some tips and pointers to help you avoid the dreaded policy lapse:
- This is a pretty obvious one, but make sure you pay all of your premium payments! Most companies offer an automatic payment option on your monthly premiums by automatically taking money out from your bank account so you don’t miss any payments.
- Moving? Make sure you contact your life insurance company right away to let them know of your new address, so they have the correct address on file and can send your premium bill (or lapse notice if need be) to the right location.
- If you have a permanent policy (term policies don't have this option) that includes cash accumulation, check to make sure you have enough cash value saved up, so if you ever do happen to miss a payment, you can use that money instead of going into the grace period. It's definitely not ideal to use your cash value in this way, but it's a good back-up option if you need it.
- Check your mail frequently, and open any mail you receive from your life insurance company as soon as you get it. We often think they're just sending us useless information, but it could be a notice of a missed payment or something else important regarding your policy. It’s better to be safe than sorry!
- If you do end up entering the grace/lapse period, read our tips below to see how you can make the process go as smoothly as possible.
So, What Happens if Your Policy Lapses?
Say you accidentally missed a payment and never saw the notification from the life insurance carrier, thus resulting in a lapse. Don't lose hope yet! Once a policy lapses, the insured has the option to go through reinstatement.
It is important to note that every company differs on the time span they allow for reinstatement payments after a lapse.
Generally speaking, you want to speak with your independent life insurance agent and reinstate as quickly as possible. With many companies, if you reinstate within 30 days after the grace period starts, you won't be required to complete the underwriting process again.
After speaking with your agent, you fill out a reinstatement application and complete a form called the "good health statement." This form will ask the current status of your health - if your health is the same as it was when you initially applied, all you need to do is pay back the company all the missed payments so the policy can be reenacted. We strongly recommend reinstating within 30 days if possible.
If you try to reinstate anywhere between 31 days and six months after the grace period starts, you'll have to do the same process as we just mentioned plusanswer some questions regarding your health asked by the life insurance company to ensure that it's still the same as when you originally applied.
Now, it may be tempting to lie if your health has declined since the original application, but here's why that isn't a good idea - lying could result in denial of your claim, which means denied access to your death benefit. So it's better to just be honest in the long run.
If you haven't reinstated and it's now anywhere from six months to 5 years after the grace period has begun, it can get much more complicated. Since each life insurance company's guidelines are different, it's best to speak with your agent to find out what the next steps are. You'll most likely have to complete a new medical exam along with your reinstatement application before you can become approved.
As we all know, our health tends to decline as we age, so if your health has done so since the last exam, you'll probably be looking at higher monthly rates (which we doubt anyone wants).
In addition, even if you do get approved, many companies will charge fees or penalties onto your total premium amount owed, depending on how long the policy lapse was. So if you wait years before reinstating, it might just be a better idea to apply for a completely new policy, depending on the company and your circumstances.
Another point we think we should mention - maybe your personal life has also changed (new mortgage, birth of a child, income, new debts, etc.), so the amount and term length of your policy may not fit your lifestyle anymore. In this case, we suggest speaking with your agent and figuring out if you should reinstate or shop for an entirely new policy.
Questions? We Can Help!
Looking to purchase a new life insurance policy, or have questions about your current one? We're your guys!
At JRC Insurance Group, we have helped thousands of families and businesses with their life insurance needs, and we can help you too! Our agency is licensed in all 50 states and we’re independently owned and operated.
As a non-partial, no-fee brokerage, our goal is match our clients with the best life insurance options available by shopping and comparing rates from 63 highly-rated insurers. By having access to dozens of companies and their guidelines, we’re able to save our client’s time and money.
Most importantly, our services as completely free, and there is no cost to apply for coverage. Give us a call toll-free today at 855-247-9555, or you can request a free quote online to compare rates and options from dozens of insurance companies in less than a minute.
Chris is a co-founder of JRC Insurance Group. Prior to founding JRC, he owned his own agency, and he has been a licensed life insurance agent since 2014. Chris is a die-hard San Diego Padres fan, and in his spare time he enjoys reading, ping pong, poker, and spending time with his wife and three daughters.