You have a million and one bills to pay, and sometimes one slips through the cracks and isn’t paid on time. This is never good. But, if you forgot to pay your life insurance premium on time, don’t panic just yet.
Life insurance policies come with what is known as a grace period. The grace period is a certain amount of time your insurer specifies that you can still pay your insurance premiums after they are due without a lapse in your coverage.
Each life insurance policy has a different grace period, so you need to read the fine print of your policy to determine what it is.
As mentioned, the grace period is the length of time after a premium is due that you can make a payment without your coverage lapsing. You may still have to pay some interest or a small fee for missing the payment due date.
If you pass away during the grace period, your life insurance policy is considered to be in good standing, and your beneficiaries will receive the payout.
Prior to payout, the insurance company will deduct the outstanding premium payment from the funds to be paid out to your beneficiary.
Most life insurance providers give you a grace period between 30 and 31 days.
If you don’t make a payment during the grace period, your life insurance policy will lapse. This means you no longer have coverage, and your beneficiaries will not receive a payout if you pass away.
In many cases, a lapsed life insurance policy can be reinstated. Most insurance providers give you a 15 to 30-day window to reinstate your life insurance policy after your grace period runs out.
During that 15 to 30-day period, it is easy to reinstate your life insurance policy. Your insurance company won’t make you undergo a new medical examination or fill out any paperwork.
To have your policy reinstated, you need to pay the missed premiums. The sooner you reinstate your life insurance policy after it has lapsed, the better.
You don’t want to risk your beneficiaries not receiving a payout should you pass away shortly after your grace period expires.
Life insurance providers typically allow you to reinstate your lapsed life insurance policy for up to three or five years after it lapsed.
To have your life insurance policy reinstated, you’ll need to complete a reinstatement application and a questionnaire regarding your health to confirm that you are in the same health condition as you were when your original policy was approved.
The insurance company may also request your medical records from your doctor or ask you to undergo a physical examination.
If you are not in the same health condition as when your original policy was granted, the insurance provider has the right to reject your reinstatement request.
If your original policy is reinstated, your premiums will be the same as before your policy lapsed.
The insurance company will ask you to repay all the missed premiums and can charge interest on the outstanding premium. You will usually be charged 6% interest.
At this point, you need to figure out if it is worthwhile to reinstate your previous life insurance policy or apply for a new one.
In some cases, whether your health condition has changed or not, it may be less expensive to apply for a new life insurance policy. This is in comparison to paying missed premiums and interest on your original policy.
If you choose to apply for a new life insurance policy, you may want to consider backdating it. These policies can generally be backdated for up to six months.
By backdating your life insurance policy, you can save money in the long run. However, you will have to pay premiums upfront for the months that the policy is backdated.
The best way to avoid the stress of being late on payments and potentially having to reinstate your life insurance policy is to have a system in place to ensure you always make your premium payments on time.
The easiest and quickest way to make sure you consistently pay your life insurance premium on time is by setting up automatic payments through your bank account.
Sometimes we miss a life insurance payment due to unforeseen circumstances or a minor slip-up. Luckily, your insurance provider gives you a short grace period to pay your outstanding premium. By having this window to catch up to your payments, you can ensure that your life insurance policy is still in good standing.
Also, consider setting up a system so you pay your life insurance premium on time every month. It will help you save money and secure the insurance payout that your beneficiaries will receive in the case of your death.