I just got off the phone with a guy who missed the end of the grace period on his $1 million life insurance policy by 3 days. He called and asked for forgiveness and was told that he could fill out a reinstatement application and, if approved, the policy would be reinstated. He had been paying on the policy for 17 years and was hoping they might look the other way just because he is a long standing good customer. The problem is that he is due to have his colon removed next week. Initial biopsies show benign polyps, but plenty of them and there is a real possibility that he may have colon cancer. That isn’t how you want to start your reinstatement application for lapsed life insurance.
Let’s put the shoe on the other foot for a second and then I want to address how to never let this happen to you or anyone you care about. From the perspective of the life insurance company, even though he is a valued customer and has faithfully paid premiums for 17 years, medically he is an unknown to them. Life insurance doesn’t require you to have a running dialog with the company about any changes in health. They accept or decline you based on your past health and the exam they do. That’s the snapshot. Then they forfeit the right to hold health issues that come up in the future against you. So, when a policy lapses, they have and use that opportunity to update and accept or decline to keep the risk on their books. It’s not fun but it’s definitely fair. In your life insurance policy it will clearly state that the only reason a company can cancel your policy is for non payment of premium. They give you a 30 day grace period. I had a client miss his annual premium due date and he died on the last day of the grace period and that company paid the death benefit in full, minus 30 days premium.
So, let’s put a stop to stories like the man above who now faces serious surgery without life insurance and, depending on the results of the pathological findings, may or may not qualify to buy a new policy in the future. By law you are allowed to have a second addressee on your life insurance notices. Whenever the company sends out a bill, they send it to your second addressee. If they send out a late payment notice it goes to your second addressee. Unless you have a cash value policy with Protective Life. Sometimes companies will send out a lapse notice with an opportunity to reinstate the policy by simply paying the premium and that will also go to your second addressee. So think about it. Whether it is estate insurance and your attorney is that person or business life insurance and your accountant is the choice, or personal insurance and you use a relative or a friend, it makes the chances of missing a payment almost impossible. If you are applying for life insurance, name a second addressee. If you already have life insurance, contact the company or your agent if you can find him or her and tell them you want to name a second addressee.
Bottom line. If you have your life insurance premium automatically drafted it should be pretty bombproof, unless the draft bounces. Make your banker or a friend at the bank (I live in a small town) your second addressee. If you have any questions about this protection for your life insurance, call or email me directly. My name is Ed Hinerman. Let’s talk.