What happens when your life insurance premium lapse. “You forgot to pay your premium”July 1, 2017
To prevent a life insurance policy from lapsing each and every time a premium payment is late, every state in the country requires that a life insurance policy first go through what is known as a grace period after a payment is missed. The term lapse refers to a “lapse in coverage”, meaning the life insurance contract will no longer pay a death benefit or provide any insurance coverage for the insured person.
Lapse Of Life Insurance Policy
A life insurance policy will lapse when premium payments are missed and cash surrender value is exhausted on a life insurance policy.
If you missed your monthly life insurance premium, then you will probably still have coverage immediately after your payment was due. After that, the company can cancel the policy and may or may not allow you to pay back life insurance premiums or reinstate the policy.
A policy will only lapse after a grace period has passed, and most companies will allow their clients to reinstate their policies for a short period after the policy has lapsed without further underwriting. This is a period of time (usually 30 days) where despite the missed payment, the insurance policy will still provide coverage and make a full payout if the insured dies.
Sometimes this may depend on whether you can provide evidence of good health. The thirty days grace period gives you time to bring your payment current and avoid potential cancellation. If over a period of time the premium is not paid, the policy may lapse if there is insufficient cash value to pay the missing premiums. A policy lapse means the life insurance policy is no longer an active contract.
Of course if you should pass away during this period and the premium has not been paid and there is no residual cash value to pay the missing premiums, the beneficiary may not be able to collect a payout of the policy benefit.