Managing Money In A Crisis
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Life insurance grace period
Can’t pay your premium? Luckily, the law offers some breathing room to make up a missed payment.
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Life insurance is a contract between you and your insurer. In exchange for your premiums, your provider offers coverage. But if you miss a premium payment, your provider will give you some time to settle that debt.
What is the life insurance grace period?
The grace period is the amount of time your insurer will give you to pay your premium without penalty. It’s legally required in all states, though the length can vary.
How long is the grace period for an individual life insurance policy?
The life insurance grace period typically ranges from 28 to 31 days — though some insurers are more generous. During this time, your coverage stays in force.
What happens if I don’t make a payment within my policy’s grace period?
If you fail to make a payment within that timeframe, your provider will cancel your policy. This means you’ll no longer have coverage, and your beneficiaries won’t receive a death benefit if you die.
It may have consequences later down the line, too. If you decide to take out a new policy, you run the risk of being denied coverage or charged higher premiums — especially if your health has declined.
Is there anything I can do if my policy lapses?
You might be able to reinstate your policy. Most providers will reinstate coverage within 30 days of a lapse without the need for any additional paperwork. After 30 days, you’ll most likely have to start from scratch and go through the underwriting process again.
If you want to reinstate your policy, follow these steps:
- Ask your insurer for a reinstatement application. It will be similar to the original application you filled out when you purchased the policy.
- Complete the form and document any health changes. Remember, life insurance is a legally binding contract, so be upfront.
- Schedule a medical exam, if applicable.
- Once your reinstatement is approved, you’ll need to pay the premiums due from the end of the grace period, plus your new premium. Generally, your provider will require you to pay your premium in full.
Most insurers will give you three to five years to reinstate your policy.
How to mitigate missing payments
When you miss a payment, you’re putting your policy at risk. Avoid skipping a payment with these strategies:
- Set it and forget it. Most life insurance companies will allow you to set up automatic payments from your checking account every month or year.
- Pay your premium annually instead of monthly. It’s easier to keep track of one payment than twelve.
- Dip into your policy’s cash value. If you have a permanent policy, you might be able to use any accumulated cash value to cover your premiums. Keep in mind that tapping into the cash value reduces the death benefit amount.
- Make use of a policy rider. Are you unable to pay your premium due to an unforeseen injury or illness? If you opted into a waiver of premium rider, it may be able to step in until you return to work.
- Assign someone to receive late payment notices. Send notices to your account or a trusted friend or family member. They can then remind you to pay your premium before the due date.
What are my options if I can no longer pay my premiums?
If you’ve done the math and can’t afford your policy anymore, you have options.
- Let the policy lapse. Explore other solutions to meet your financial needs. For example, if you simply want to leave your beneficiaries the cash to cover your funeral expenses, you could open a high-interest savings account.
- Surrender your policy. If you have permanent life insurance that’s built up cash value, you can surrender your policy and receive the cash value. You won’t get a refund on the premiums you’ve paid, though.
- Research new policies. Find a policy that better suits your budget by comparing providers, policy features and premiums.
- Look into a life settlement. You may be able to sell your policy and receive a percentage — usually 20% to 30% — of its face value. These transactions are handled by brokers or providers, and the new owner will be named as the beneficiary of your policy.
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Bottom line
Life insurance companies will give you about a month to make up a missed payment. If you don’t pay up, your policy will lapse. Depending on your provider, you might be able to reinstate your policy, but you’ll want to do it as soon as possible to avoid taking another medical exam.
If you’re having trouble paying your premiums, search for life insurance companies with lower rates.
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