If you forget to pay your life insurance bill, you might worry the policy will lapse. However, even in a period of financial hardship, keeping your life insurance is more important than ever. It's a safeguard for your family should anything happen to you.
The good news is that most policies have a grace period, so one mistake won't cause you to lose your policy.
What is the grace period on a life insurance policy?
The grace period on a life insurance policy is basically a helpful extension. If you miss paying your premium on time and it becomes overdue, this period gives you extra time to catch up. Your policy stays active during the grace period, so you can make the payment you missed without any penalties. This period usually lasts around 30 days but can vary depending on the insurance company and the policy terms.
Your coverage continues if you pay the overdue premium within this grace period. Remember that if you don't pay your premium during the grace period, your policy could lapse. In the event of a lapsed policy, your beneficiaries won't get the promised benefits should anything happen to you.
How does a life insurance grace period work?
Think of a life insurance grace period as a safety net when things get behind. When you can't pay your insurance premiums on time, the grace period kicks in. During this time, your life insurance contract stays in effect.
If something happens to you during this grace period, your beneficiaries will still receive the coverage amount minus the unpaid premium. Be careful — if you let your policy lapse, you might have to reapply for life insurance. It's wise to stay on track with your payments to keep your coverage intact.
What is the purpose of a grace period in life insurance policies?
A grace period in life insurance policies provides you with extra time to make overdue premium payments without the policy lapsing. This gives you several key benefits.
Allows flexibility for premium payments
The grace period in life insurance offers flexibility for premium payments. This helps you to keep your eventual life insurance payout safe. If you miss a payment, the grace period allows you to catch up without losing coverage. It's a helpful way to protect you and your loved ones, even when things get tight.
Coverage continuation during financial difficulties
The life insurance policy grace period, usually 30 or 31 days, allows people with permanent life insurance policies to maintain coverage even when they face temporary financial difficulties. The grace period provides a safety net by preventing immediate coverage termination. This helps policyholders avoid the potential loss of protection due to missed payments.
That potential loss can vary depending on the type of life insurance policy you have. With permanent life insurance, your policy may have built up a cash value over time. In that case, the insurance company may take your premium out of your cash value. On the other hand, if you have a term life insurance policy or a policy with no cash value, you'll have to pay the premium during the grace period to keep your policy.
Preventing immediate policy lapse
Missing a payment can happen for several reasons. Consider this: You switch to a new bank and set your work paychecks to deposit directly to the new account, transferring all the money from your old account. You start updating all your automatic bill payments, but perhaps you miss one or two regular bills, including your life insurance policy.
Your life insurance contract stipulates you have to pay the premium on the first of every month. You missed the most recent payment — then disaster struck. Rather than be unable to access your policy's benefits, your dependents can still receive your insurance payout — minus the missing payment — thanks to the grace period.
How long is the grace period for an individual life insurance policy?
The grace period for life insurance is 30 or 31 days in most cases. Check your policy's information for an exact length.
What does the grace period allow a life insurance policyowner to do?
The grace period allows you to make a late premium payment and still keep your coverage intact. If you don't pay within the grace period, the policy will lapse. If you want the policy back, you may have to submit a reinstatement application.
A reinstatement application allows you to bring your life insurance policy back into effect after it's lapsed due to missed premium payments. This procedure can be essential if you want to continue your coverage without applying for a new policy, which might entail higher premiums or additional underwriting.
To initiate a reinstatement application, you typically need to follow these steps:
1. Contact the insurance company: Contact your insurance company as soon as you realize your policy has lapsed.
2. Review policy terms: Understand the terms of your policy, including any specific guidelines for reinstatement outlined in the policy documents. Different insurance companies might have varying procedures and requirements.
3. Complete reinstatement application: Ask the insurance company for a reinstatement application form. Typically, this form will require your policy number, personal details, reasons for the lapse and your current health status.
4. Pay the outstanding premiums: You must pay all unpaid premiums plus any interest or penalties accrued during the lapsed period.
5. Provide evidence of insurability: Depending on the policy terms and the length of time the policy has lapsed, the insurance company might request updated information about your health. This could involve submitting a medical questionnaire or undergoing a medical examination.
6. Wait for approval: The insurance company will review your application once you've submitted the reinstatement application and paid the required premiums. The process duration varies but typically takes a few weeks.
7. Receive confirmation: If your reinstatement application is approved, you'll receive written confirmation detailing the reinstated policy's terms and conditions. The life insurance provider will restore your coverage, and your beneficiaries will again be eligible for the death benefit.
Remember, the availability of reinstatement depends on the specific policy terms and the time since the policy lapsed. Some life insurance companies might not allow reinstatement, while others might have limitations on the reinstated coverage. It's crucial to thoroughly review your policy documents and communicate with your insurance company to understand your options.
Summary of Money's explanation of what a grace period is in life insurance
The best life insurance is a lifeline to your loved ones if something ever happens to you, so you want to make sure your policy never lapses due to nonpayment. That's where a grace period can help. During the grace period, you can pay the premium and keep your coverage. To get the most out of your life insurance, become familiar with the ins and outs of grace periods and life insurance for beginners.