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Billing for a life insurance policy, unless paid by automatic bank draft, usually comes a few weeks before the due date. What happens if you miss that bill or if you moved and forgot to notify your agent or the company?

Protection for these types of occurrences is built right into the policy in the form of an automatic grace period. While the length of the grace period may vary, generally speaking it is usually a one month, or 31 day period. During that period if you passed away, even if the bill was not paid, the policy is fully in force and a valid claim would be paid in full, minus the amount of premium due. The attached excerpt from a policy of mine shows the language concerning the grace period.

policy-view-2

From this it really is apparent that the company wants to do everything possible to make sure that an inadvertent lapse doesn’t occur. During that 31 day period most companies will send at least two more premium due (or past due) notices and will also let your agent know that your policy is in danger of lapsing. Agents are usually notified toward the end of the grace period, kind of a courtesy so no one is calling and bugging you when you are simply a little late with the premium.

The policy really does lapse after the grace period and at that point there is no death benefit is payable, but again, I think you’ll find most companies, understanding that things happen, will do all they can to help you reinstate your coverage with minimal hassle. Usually for a few months after the lapse they will allow a reinstatement by simply completing a good health statement (attesting to no health changes) and, of course, any premium due since the original due date. There will come a point where a reinstatement will only be entertained with a full reinstatement application and medical underwriting. Again, if approved, premiums all the way back to the original due date are required for reinstatement.

If a policy has been lapsed for six months or more and full medical underwriting is going to be required anyway, it may be worth contacting your agent to see if the reinstatement is really going to be a better deal than applying for a new policy.

Bottom line. Companies do all they can to make sure you stay covered and, at least in my mind, the grace period is a very generous thing. I had one client who passed away one day from the end of their grace period. I had literally just received notice that he was at the end of the grace period and was attempting to contact him when I found out. The company paid the death benefit, $250,000, minus the $78 that would have been needed for the policy to stay in force for that month.