What will happen if I can’t pay my life insurance premiums on time?
Sometimes life doesn’t always go as planned—that’s one reason term life insurance is a great financial product to own. There is no penalty for cancelling a term policy either. If you stop paying your premiums, your policy terminates. No cancellation fees.
But what happens if I just can’t afford to pay the premiums on time?
Maybe you are injured and out of work, or an emergency drained your savings, or you simply forgot to send in the check; whatever the reason, you didn’t pay your premiums.
What happens now?
Whether you are struggling financially or simply forgot to pay the bill, your term life insurance policy may lapse, and you’ll no longer be covered.
All term life insurance policies have a grace period, with most of them lasting 30 days from the original due date. However, if you fail to make the premium payment within the grace period, your term life insurance policy will lapse, and you will need to have it reinstated.
Before we get too much into specifics, let’s get a quick reminder of how life insurance works.
A term life insurance policy is a contract between you and the life insurance company. You agree to pay a certain amount and they promise to pay out a lump-sum to your beneficiaries should you die. If you stop paying the agreed upon amounts, then your policy will simply lapse and you would no longer be covered.
Don’t panic immediately though, because all term life insurance policies include that grace period we just mentioned.
Life Insurance Payment Grace Period
As long as you make the payment—and the insurance company receives and processes your payment within that grace period—your policy will not lapse. So, while it is important for you to make your payments on time, you will be relieved to know that you are still covered during the grace period.
Don’t panic. All term life insurance policies have a grace period that lasts 30 days from the original due date.
Lapsed Life Insurance Policy
If you aren’t able to make the premium payment by the due date (or within the grace period) your policy will lapse.
A lapsed policy means that it is no longer active. You will not be covered and your beneficiaries would not receive a death benefit if you died. Additionally, your past payments will not be refunded if your policy lapses.
After a policy first lapses, the owner may have the option to reinstate the policy within a certain period of time (depending upon the company), but you may have to prove your insurability by going through the underwriting process again.
Reinstating a Lapsed Life Insurance Policy
If your policy lapsed but you still want to be covered, you can apply for reinstatement. Each company has its own guidelines for reinstatement but most will allow you to apply up to five years from the end of the policy’s grace period.
What is usually required when applying for reinstatement:
- Reinstatement Application: All companies will ask you to complete a reinstatement application that is similar to the original application you filled out for the policy.
- Health Statement: Most companies want to see if anything has changed with your health since you first applied. If you apply for reinstatement within 30 days of the grace period ending, many insurance companies won’t even need this statement and no underwriting would be necessary to reinstate the policy.
- New Medical Exam: Most companies won’t require this if you apply for reinstatement within a certain amount of time, typically within six months of the end of the grace period, but this varies by insurance company.
Even if you apply for reinstatement within a couple months, you may still be asked to complete a new medical exam if the answers on your health statement suggest you’ve experienced some health changes.
It would not be wise to attempt to trick the system and lie on your health statement. If it is discovered during the claims process that you lied, the insurance company can dispute all (or part of) the benefit your beneficiaries would receive upon your death.
As a general guideline—the less underwriting the better—because if a new health condition is discovered, you may no longer qualify for the same rates and your premiums would increase when reinstated.
Finally, it’s important to know that, if you are approved for reinstatement, you will be required to pay the premiums due from the end of the grace period. If you’ve let your policy lapse for a few years—that could be a significant amount.
If you haven’t paid your term life insurance premiums and let your policy lapse for a considerable amount of time, applying for a new policy altogether may be a better choice.
If the reason your policy lapsed is because life got crazy and you simply forgot to send in a check, we recommend that you make the switch to automatic payments.
All major life insurance carriers offer the ability to automatically draft your premium payments from your checking account.
Make life easier on yourself: set it and forget it.
With automatic payments, you’ll never need to worry whether your loved ones are financially covered if you would die unexpectedly.
Help for Lapsed Insurance Policyholders
If your life insurance policy has lapsed and you are shopping for a new one, take a minute to see how little it would cost you to get a new term life insurance policy.
At Quotacy, there is no need to enter any personal contact information to get your comparison quotes. With our comparison tool, you’ll be able to see your quote instantly and adjust the coverage amount and term length as needed before starting your application.
Remember, term life insurance gives peace of mind by ensuring your loved ones are protected—so it’s worth it to set up a stress-free system to pay your premiums. But, if you didn’t, no worries. We can help you the second time around as well.
Watch the Missed Life Insurance Policy Premium Payment Video
Welcome to Quotacy’s Q&A Friday where we answer your life insurance questions. Quotacy is an online life insurance agency where you can get life insurance on your terms.
I’m Jeanna and I’m Natasha.
Today’s question is:
What will happen if I can’t pay my life insurance premiums on time?
Whether you just forgot to send in a check or an emergency drained your savings you have some options if you missed a life insurance policy payment.
All term life insurance policies have a grace period. Most grace periods are roughly 30 days.
As long as you make the payment and the insurance company receives and processes it within your policy’s grace period your policy will not lapse. A lapsed policy means that the policy is no longer active. If your policy lapses and you die, your beneficiaries will not receive a death benefit.
But what happens if you missed a payment and you die during the grace period? If your premium was due on April 30th and you die on May 5th the insurance company will still pay your beneficiaries the death benefit. However, they may deduct the premium owed.
So, if you miss making a payment and you don’t get the premium paid within the grace period, are you out of luck? No. If your policy lapses because you didn’t make a payment you still have options if you don’t want to lose your coverage.
Your life insurance policy likely has a reinstatement provision. This means you have the option to reinstate or reactivate your policy within a certain time period. But you may have a few hoops to jump through.
Each company has certain requirements that you as a policy owner must meet to be able to reinstate your policy.
Requirements for Policy Reinstatement
- Apply for reinstatement within the time limit
- Provide an updated health statement
- Get another medical exam (sometimes)
- Pay all overdue policy premiums
These requirements include:
Applying for reinstatement within a certain time.
Companies have different reinstatement periods but most will allow you to apply up to five years from the end of the policy’s grace period.
Providing a health statement.
The insurance company will ask you to answer some health questions to ensure you have had no significant health changes since you originally purchased the policy.
Getting another medical exam.
If some time has passed since you first purchased your policy you may be required to get another medical exam before your policy can be reinstated.
Paying all overdue premiums.
To be approved for reinstatement you will be required to pay all of the premiums due from the end of the grace period. If you’ve let your policy lapse for a few years this could be a significant amount and it may be better to buy a new term policy altogether.
If the reason you missed your premium due date is because life got a little crazy and you simply forgot to send in a check, consider switching to an automatic payment method. All major life insurance companies offer the ability to automatically draft your premium payments from your checking account.
» Compare: Term life insurance quotes
If you have any questions about life insurance, make sure to leave us a comment. Otherwise, tune in next week when we talk about the new 40-year term policy option. Bye!
Photo credit to: Aaron Mello
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.