Life Insurance Lapse and Reinstatement Issue

A life insurance policy offers financial protection for the family of the policy holder in case something unexpected happens. However, the policy holder must keep up their part of the bargain otherwise there could be a life insurance policy lapse which renders it worthless unless corrected quickly.

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While this can happen to anyone, it is very important that no lapse in premium payments occur because the ramifications are certainly clear. If you stop paying on your premiums, you may very well lose your life insurance policy and all the benefits that it offers.

The Definition of a Life Insurance Policy Lapse:

By definition, a life insurance lapse occurs when premium payments are no longer made and the cash surrender value has become exhausted under the conditions of the policy itself. The term itself refers to lapse in the coverage which means that the death benefit will now not be paid even if the policy has been regularly maintained for many years.

What Happens When Life Insurance Lapses?

If you do not make your premium payment on time, you policy will go into what is known as a “grace period”. The grace period is generally a set number of days that must pass before the policy will lapse. The grace period was set up to avoid issues such as delays in the mail or forgetting to pay right on time, but paying a very short time later.

The grace period is there to prevent people who are trying hard to keep their life insurance policy from facing a lapse due to forces beyond their control. Generally speaking, the grace period is roughly 30 days where the insurance company will still provide coverage. However, if the grace period passes and the insurance company still have not received a premium payment then it will be considered a lapsed life insurance policy.

Life Insurance Lapse Reinstatement:

Lapsed Life Insurance and Reinstatement Tips

Missed the Premium Again, Policy Has Lapsed Too, What To Do Now?

If the policy passes the grace period with no payment, it has become lapsed and there is no coverage. This means that if the policy holder should pass away during this time, no benefits are paid. The resumption of premium payments must begin soon or the policy itself may never been brought back.

Can you reinstate a lapsed policy?

Even if the policy has lapsed, it can still be reinstated under certain conditions. Generally speaking, the life insurance lapsed rates are generally higher depending on how late the payment is being made and considering the additional premium payments that must be made as well. In most cases, the time that the policy holder has to pay is two-fold.

If the payment is made within the first thirty days in which the policy has lapsed there is no additional underwriting. However, if the period has gone past 30 days and up to six months, then there will be some limited underwriting to verify that all the information is still correct.

The lapse ratio may vary depending on the company and the policy, so be sure to read all the pertinent information about the terms of the grace and lapse period so that you can maintain your life insurance policy.

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