I remember a few years ago attempting to contact a customer about a late payment notice on his life insurance. He was one of those guys who really wasn’t too good about returning calls so I kept trying.
He had been approved a year before and on his exam had discovered that he had type 2 diabetes. Because the company had given him a great offer considering the labs I really didn’t want to have him go through another application. I got a call from his fiance that morning saying that he had passed away over the weekend. I called the company to see what the status of the policy was on the date he died and he passed away on the last day, literally the last day of his grace period. One day later and there would not have been any insurance. I was so relieved when I called her back and let her know that the policy was fully in force and that I would be forwarding claim forms. Can you trust the life insurance grace period? The answer is 100% yes. That insurance claim was paid in full minus the premium due for the 30 days of the grace period, in this case $250,000 minus $78.
The grace period is there by law so there really is not wiggle room for insurance companies. If you die during the grace period it will be handled as the example above. Almost all life insurance companies offer an extended grace period that goes out to 60 days past due. While the life insurance will no longer be in force once you pass 30 days, most companies will allow you to put it back in force before it is 60 days past due by just making the payment
When replacing an old policy with a new one I always make sure my clients understand that they should never cancel the old insurance until the new is in force. Sometimes, especially when there is a large monthly automatic withdrawal coming up on the old policy, and we are very close to issuing the new policy, I might advise a client to stop payment on the draft. If a company gets a draft back unpaid it will start a grace period of 30 or 31 days depending on the state. The only other way to stop that payment is to call the company and tell them to cancel the policy and stop the draft. The problem with that route is canceling a policy is effective immediately and there is no grace period.
The worst case scenario with my advice above is that, even though we seemed to be ready to put a new policy in force, something happens and there is a delay. If that happens the client can always call the old company and make arrangement to make a payment and keep the policy in force for a while longer.
Bottom line. A life insurance grace period is there for your protection. Whether you just didn’t see the bill, changed addresses and didn’t tell your agent, or have been sick and the bills are piling up at home, the company wants to be fair and since the grace period is required by law, they really want to be fair. If you have questions please call or email. My name is Ed Hinerman. Let’s talk.