Anyone can neglect to pay their bills. However, if the missing payment is for a life insurance premium, it is critical to send it as soon as possible.
The good news is, you have a cushion. Life insurance companies typically provide a payment “grace period” of about 30 or 31 days. Your coverage will continue as long as you pay the amount outstanding within the grace period. If you die during the grace period without paying the debt, your beneficiary will receive the life insurance death benefit less the amount you owe.
You’ll be in trouble if the grace period expires and you haven’t paid your life insurance premium. The insurance may then “lapse,” which means that the coverage will stop, and you may be required to apply for a new policy with higher premiums.
Consequences of missing the grace period
If you do not make your payment during the grace period and your insurance lapses, the insurer will usually take the premium for another 30 to 60 days, depending on the business, and then reinstate the coverage.
After that period, you can ask to have your lapsed policy renewed. You must pay any past-due premiums, and you may be charged interest on missing payments, as well as penalties like late fees. Still, it is often less expensive than purchasing a new coverage based on your present age and health.
You can normally apply for reinstatement within three to five years of your policy expiring, although it is best to act promptly. If your lapse lasts more than a few months, you may be required to prove that you are not too hazardous to insure by answering health questions or taking another life insurance medical test.
If you die before restoring or replacing your lapsed policy, your life insurance beneficiary will not receive a payment.
Stay organized to make on-time payments
Even if you do not receive a premium notice, you are responsible for making timely payments. To avoid skipping a premium payment (and a possible policy lapse):
- Set reminders for life insurance bill due dates.
- If you mail a check, allow enough time for it to arrive. The premium is normally deemed paid on the date the insurance company receives the payment, not when it is mailed.
- If your insurance company allows it, pay online to avoid mail delays.
- Create automatic payments from your bank account. Remember to update your information if you move banks, and make sure you have enough money in the account when the payment is due.
- Fill out a form provided by your insurance carrier to designate a second recipient of late-payment warnings, such as an accountant or trustworthy relative. If you miss a payment, a late notification will be issued to you and the chosen person, who can then remind you to pay the account.
If you notice a late payment on your life insurance policy in time, don’t panic. However, it is best to create protections so that you do not have to scramble.
