I had a client who, by his wife’s own admission, was a bit of an airhead when it came to things like paying bills on time. When we put life insurance in force on the two of them he insisted that the bill should come to him.
His annual bill came due June 1, 2009 and he didn’t pay it and because his wife didn’t get a copy of the bill (you do have the right to a second addressee for bills), it went into the grace period. Even though I had left him a message calling on an annual review he didn’t call to question anything about the bill. I got a late payment notice and called several times trying to reach him. He died on July 1, 2009, the day before his grace period would have expired lapsing the policy. We filed the claim and the company paid the full death benefit minus 30 days premium for the amount of the grace period that had gone by.
That’s a pretty rare example. More commonly we hear about those who die when the insurance has lapsed and the company doesn’t pay a death benefit at all.
So I want to go over some very important things you should know about your life insurance grace period. First, here is sample grace period language from a United of Omaha life insurance policy.
“There is a grace period of 31 days to pay each premium except the first premium. We will mail a notice to your last known address and to any collateral assignee of record within 30 days after the start of the grace period.
The policy stays in force during the grace period. If the insured dies on the premium due date or during the life insurance grace period, the premium due for the policy month in which the insured dies will be subtracted from the death benefit.
If you do not pay any premium by the end of the grace period, this policy will Lapse as of the premium due date. You may put the policy back in force by meeting the requirements of the Reinstatement provision.”
Whether you are paying monthly by automatic bank draft, quarterly, semi-annually or annually, if the draft bounces or the bill isn’t paid it enters a 31 day grace period. Keep in mind that except for bank drafts you will generally get a bill a few weeks before the due date. The grace period starts the day after the due date. I can’t emphasize enough how important it is for agents to stay in touch with their clients and clients with their agents. I send a letter to each client 6 weeks before the due date just reviewing the policy benefits, the length of time left on their guaranteed term period, and different options such as conversion that they should keep track of.
I then call my clients about a month before the due date to see if they have any questions or if there have been any changes that I should know about, such as their last known address having changed without notifying the company. By calling a month before the due date we can do an address change so their statement doesn’t get caught in a forwarding cycle that is always insufferably slow.
If you pay other than monthly and you die during the grace period, the company will return all premiums paid except for those due during the policy month the death occurred. Notice that the provision states that if you do not pay any premium by the end of the grace period the policy will lapse. If you owe some whopper annual premium and can’t pay it, call and ask them to put you on a monthly or quarterly mode until you get over the financial hole you’re in. Don’t let it lapse. If you’ve had a health change since taking out the insurance, reinstatement is not a guarantee. They can and will decline reinstatement if you are no longer insurable based on underwriting.
Just a few other quick points. Never cancel a policy that you are replacing until the new policy is in force. If you actively cancel a policy THERE IS NO GRACE PERIOD. You can let it go into the grace period if your new policy is close to going in force, but you and your agent should be very careful not to let it lapse until the new policy is in force.
You have the right to name a second addressee for any notices from your life insurance company. Do it!! A lost statement or late payment notice or reinstatement offer can end up with a death benefit not being paid. It’s too important not to take advantage of a backup.
If you are on an automatic bank draft the company will generally try to draft again during the grace period if payment fails.
Companies will send out late payment notices to you and your agent, but my experience is that you generally receive them after the grace period. Note the language in the paragraphs above, “within 30 days after the start of the grace period”. If you have a 31 day period and they promise to send you a notice within 30 days, well, you likely won’t get it in time. Call right away if you get a notice and make arrangements to pay the policy to current. Often companies will reinstate a policy without an application if it is only a few days past the grace period.
Bottom line. The life insurance grace period is a very generous thing insurance companies provide. Make sure you understand it and always keep track of when bills should be coming and don’t hesitate to call the company or your agent if you think you should have received a bill, but haven’t.