Lapsed Life Insurance Coverage: Things You Should Know
One of the most common reasons life insurance coverage is denied is that the policy lapsed due to nonpayment of premiums. For insurance companies, it’s a win-win: They collect premium payments for years, terminate the policy after a few missed payments, and then they can refuse to pay out on a policy when the policyholder dies. Some insurers have even engaged in practices that cause missed payments and lapse, such as by failing to notify policyholders of missed payments. To protect policyholders against preventable lapse, California imposes several obligations on insurance companies. Read on to learn about policy lapse and insurer obligations, and call a seasoned California life insurance policy lapse attorney for advice and assistance if your policy has been unlawfully terminated or your insurance claims are unreasonably denied.
Mandatory Minimum Grace Period
Every insurance policy comes with a “grace period.” A grace period is a period of time following a missed premium payment before the insurance company will terminate a policy or allow the policy to lapse. So long as the policyholder makes the required payments during the grace period, there will be no policy lapse or coverage interruption. During that grace period, the insurance policy remains in effect–if the policyholder dies during the grace period, coverage still applies, and benefits must be paid out.
In most states, the grace period is typically 30 or 31 days. In California, life insurance companies are required to give policyholders at least 60 days before a policy lapses. Regardless of what your policy states, if your policy was issued in California, you are guaranteed 60 days’ grace. Insurers can offer an even longer grace period if they so choose.
Before your policy can be terminated for nonpayment of premiums, the insurance company must give adequate and timely notice. California law requires life insurance companies to notify policyholders and others designated to receive such notice within 30 days after a premium payment is due and goes unpaid. Insurers must also provide written notice regarding a potential policy lapse at least 30 days before terminating the policy for nonpayment.
If the insurance company fails to provide the requisite notice, the policy termination cannot go into effect. If a life insurance company does not provide any notice to a policyholder regarding missed premiums prior to termination, and the policyholder dies, the policy beneficiaries may still be able to obtain benefits.
Designation and Annual Updates
As discussed, California law requires insurers to provide notice of missed premiums and notice in advance of possible termination. That notice must be sent in writing not only to the policyholder but also to any parties the policyholder has designated to receive such notice. Life insurers must give policyholders an opportunity to designate parties to receive notice, and they must provide reminders to the policyholder at least once a year of their right to choose a designee, add new designees, or change their designees. Policyholders typically designate a beneficiary or another trusted family member.
The notice designation stems from the fact that policyholders are most likely to miss payments when they are elderly, ill, or injured–precisely when they need coverage the most. By designating another party to receive notice of missed payments and possible lapse, policyholders gain an extra measure of security against lapse.
Reinstatement After Lapse
If your policy lapses due to the nonpayment of premiums, you do not have to obtain a new policy from scratch. Insurance companies typically offer policyholders a period of between two and five years during which the policy can be “reinstated.” Reinstatement means that you’ll get the same policy for the same price you’ve been paying, rather than applying for a brand-new policy and potentially paying much more for different coverage.
Reinstatement does not require going through all of the steps necessary to apply for a new policy, but you will need to submit a reinstatement application along with a health questionnaire. The insurer might or might not ask you to submit to a medical exam. If your health has not changed substantially since your original application, the insurer will likely allow you to reinstate your existing policy. If your health has changed or deteriorated, they might deny reinstatement. You’ll owe any premiums that went unpaid prior to lapse, typically with interest.
Note that reinstatement restarts the two-year “contestability period.” If you made any material misstatements in your original application or your reinstatement application, the insurer could invalidate and rescind your policy during the two years following reinstatement.
Call a Dedicated California Insurance Denial Law Firm Today for Help Protecting Your Policy and Your Loved Ones
If your life, disability, or health insurance claim was wrongfully denied, or if you have otherwise been subjected to bad faith insurance conduct in California, fight for the coverage you are due with the help of the seasoned and professional Los Angeles insurance denial lawyers at Gianelli & Morris. Call for a free consultation at 213-489-1600.