What Should You Do if Your Insurer Terminates Your Life Insurance Coverage?
If you miss premium payments on your life insurance policy, you typically have a certain number of days to pay back owed premiums without the policy lapsing. Even if your policy has been terminated due to missed premiums, you can typically seek to reinstate your policy. If it has only been a few days since your policy has lapsed, you can likely reinstate the policy without much hassle. If it has been several months or years, you might be able to reinstate your policy, but you will likely have to go through a reinstatement process with a new application.
The Grace Period
If you purchase a life insurance policy in California, you have a grace period after your policy premium due date within which you can pay your premium without incurring any sort of penalty. In California, the grace period is at least 30 days following the due date of your premium, and it may even be longer. Due to financial difficulties experienced by many during the novel coronavirus pandemic, most life insurance companies have extended their grace period to 60 or 90 days.
During the grace period, your policy is still in effect. If the insured party passes away after a missed payment but within the grace period, the insurance company must still pay out on the claim, although they will likely deduct any missed premium from the benefits payout. If the insured party dies after the grace period without paying their premium, then the policy might have lapsed and the insurer could reject the claim.
Whether your policy lapses immediately after the grace period depends in part on the type of life insurance policy. Term life insurance policies will typically lapse at the end of the grace period. For permanent (whole) life insurance policies, however, you may be able to go longer without paying premiums. If your policy has cash value built up, your insurer can use that value to cover payments; once the cash value has been used, the policy will lapse. Dividends from whole life policies may also be used to offset missed premiums.
Reinstatement Shortly After the Grace Period
If you fail to pay your premiums during the 30-, 60-, or 90-day grace period on a term life policy, your policy will likely lapse. However, many insurers will allow you to reinstate your policy if you are willing and able to pay your overdue premium shortly after the policy lapse. Often, insurers will give you an additional 15- to 30-day time buffer to reinstate your policy without needing to go through a whole reinstatement process with a new application.
Note that your policy will still have lapsed at the end of the grace period, meaning that if you pass away before reinstating your policy, the insurer can deny coverage based on a lapsed policy.
Reinstatement After Lapse
If you fail to make payments during the grace period or within the additional buffer time after the lapse, then you may still be able to seek reinstatement of your policy rather than having to purchase an entirely new policy. Typically, insurers allow parties to reinstate a lapsed policy within three to five years after the lapse. The process will be more labor-intensive than simply paying during the grace period, however.
You will likely need to submit a reinstatement application, which will include answering questions about the current state of your health, finances, and other factors. You will need to demonstrate that your health has not substantially changed since when you obtained your original policy. You may need to submit medical records or even undergo a medical examination to demonstrate your current health. If your reinstatement application is approved, you might need to pay back all owed premiums, with interest.
If your health has changed significantly, your reinstatement application might be denied, and you could need to purchase an entirely new policy. If your health is relatively unchanged, however, then you might be able to reinstate your existing policy at the rate you were paying before lapse. If you have advanced much in age since your initial application, then a reinstated policy is likely to be much cheaper than purchasing a new policy.
Note that reinstatement may restart the “contestability period” for policy rescission. That means that if you die within two years of reinstatement, the insurer can review your application for misstatements and omissions. If they discover any material misstatements or omissions on your reinstatement application, they could use that information to deny your claim and rescind your policy.
Life Insurance Claim Denied? Call Gianelli & Morris.
If you are a California policyholder or beneficiary struggling to get the benefits you paid for, call the insurance law attorneys Gianelli & Morris for a free consultation regarding your claim.