Learn about life insurance and nonpayment of premiums.
Most people understand that to have life insurance, the monthly premiums must be paid. The monthly premium is another name for the monthly cost of life insurance. If the monthly premiums are not timely paid, it is called a lapse of coverage. If the life insurance coverage lapses because of non-payment of the premium, the life insurance company is no longer obligated to pay out the death benefit, may cancel the policy, or deny a claim. Insureds and beneficiaries should be aware that life insurance companies will deny claims for death benefits if there is any lapse of coverage. However, there are some important facts to know about lapses in life insurance coverage based on non-payment of life insurance premiums.
First, missing a few premium payments is not always grounds to cancel a life insurance policy. Many life insurance policies have a grace period of between thirty and sixty days that allow insureds to catch up, or pay off the missing premium payments. It is important to know about this grace period because it is common for life insurance companies to deny a claim for death benefits based on a lapse in coverage, even if the grace period has not passed. It is also important to know that beneficiaries are entitled to know whether life insurance companies mailed notices of past-due premiums, called “premium due notices,” to the correct address to challenge a denial of benefits. These premium due notices must comply with each state’s applicable law. This can be seriously important because in the last few years of an insured’s life they may be critically injured or sick, and unable to pay the monthly life insurance premiums. If the premium past dues notices were not being properly sent, the life insurance company should not deny the death benefit to the beneficiaries.
Second, if the insured passes away within this grace period, the life insurance policy may allow for the beneficiaries to receive any death benefit from the policy after deducting the missing payments. So, it is possible that benefits will still be paid out upon the insured’s death even if there has been a missing premium payment, as long as the premium payments are caught up or the insured passes away within the grace period provided in the life insurance policy. It is critically important that the insured, and in some cases the beneficiaries, work with the insurance company during the grace period to catch up and make sure that the life insurance policy does not officially lapse and become invalid.
Finally, it may be possible to reinstate a life insurance policy even after coverage lapses because of non-payment of premiums. However, the insured will likely have to catch up on any past due premium payments and pay interest on those past-due premium payments. Reinstatement may require the insured to do a new medical exam. Also, the life insurance company may require the two-year contestability period to restart after the reinstatement of the life insurance policy.
Life insurance policy premiums must be paid when they come due. Failure to timely pay the premiums and allowing the policy to lapse can result in the life insurance company no longer being obligated to pay the death benefits to the beneficiaries when the insured passes away. However, insured people and their beneficiaries need to understand the coverage options when a few premium payments are missed. This is especially true when life insurance companies are very likely to deny claims based on a lapse in coverage, even when there are options to keep the policy from lapsing.
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