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Understanding Your Life Insurance Payment Grace Period
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Updated:
Jun 28, 2024
Written by
Bret Colson
Bret Colson
Edited by
Sabrina Lopez
Sabrina Lopez
When you’ve got a busy life with many obligations, it’s easy to forget to pay a bill. Most of the time, you’ll get friendly reminders prodding you to catch up. And then there are those times that carelessness or other circumstances get the best of you.
That sometimes happens with life insurance coverage. Fortunately, top life insurance companies understand that missed payments can occur for various reasons. That is why they give policyholders added time to bring their policies current through grace periods.
Grace periods are typically about 30 days, during which time you can bring your policy current, and it will remain in force. If you die during the grace period without paying the bill, your beneficiary will receive the death benefit minus the money you owe.
If you ignore your premium payment during the grace period, your policy will lapse, and your coverage will end. You may be able to have it reinstated, but chances are you’ll have to go through medical exam underwriting and have to pay higher premiums.
What Is a Grace Period in Life Insurance?
Life insurance companies generally allow you to pay your premium past its due date in what’s called a grace period. Grace periods vary by provider but are usually 30 days and give you some extra time to ensure your policy remains in force.
When you buy a policy, you will have the option of how frequently you want to pay, and this can help you avoid late payments. Most insurance companies offer flexible payment options, such as monthly, quarterly, semiannually or annually.
Of course, paying annually greatly reduces the risk you will be late on a payment. You simply deal with a reminder one time a year versus as many as 12 times in a year.
You should fully understand a company’s grace period policy when you are shopping for life insurance. Ask this question as part of your due diligence.
Consequences of Missing Payments
When you miss a payment and your grace period kicks in, you are on a tight timeframe to bring your life insurance payment obligation current.
If you don’t make your payment by the end of the grace period and your coverage lapses, you may be able to apply to have it reinstated, but you will definitely have to pay the overdue bill plus interest.
Reinstatement periods last for up to five years and vary by insurance company. But if your lapse is longer than a couple of months, you’ll need to prove that your risk profile hasn’t changed significantly by answering health questions or taking another life insurance medical exam. This is a bit of a hassle, but still cheaper than buying a new policy.
If you die before you reinstate your lapsed policy, your beneficiary won’t receive a life insurance payout.
With some permanent life insurance policies, you can add a rider that builds cash value over time. Whole life insurance policies will allow you to stop making payments and use the cash value to pay your premiums instead. That solves any concern about missing a premium payment, but it can take several years before you have sufficient cash value to cover premium costs. A term life insurance policy has no cash value, and the only cushion you have is the grace time period, after which the policy will lapse.
Reinstating Coverage Within the Grace Period
If you are late with a premium payment, you can reinstate coverage within the grace period.
Insurance providers have different policies, and you’ll need to check the fine print under the terms and conditions of your policy to understand your options. You can also call the company or your insurance agent to discuss your options.
Some providers may only require you to fill out a reinstatement application and pay the difference in premium since your policy lapsed. Other companies are more stringent, and you could be required to undergo a medical exam to confirm your health hasn’t changed significantly since you purchased your policy.
If you go past the grace period, you may completely lose coverage without any possibility of reinstatement. Although most companies will reinstate a policy within a five-year window, you will probably be required to answer more health questions or take another medical exam.
Also, if your life insurance lapses and you have a loan against your cash value, you may have to pay any unpaid interest and reinstate the loan.
How To Stay Organized To Make On-Time Payments
Here are a few strategies to ensure you make life insurance premium payments on time.
- Create calendar reminders for life insurance bill due dates.
- Set up automatic payments from your bank account, but make sure you have enough money in your account when the payment is due. Be sure you also change your payment information if you switch banks.
- Pay your premium annually if you have the flexibility to do so. A single annual payment is generally easier to remember than paying monthly or quarterly.
- Designate a second person to get late payment notices. This creates a redundant system, and the second person is your insurance policy that you pay premiums on time.
Frequently Asked Questions About Life Insurance Payment Grace Periods
If you paid premiums in advance and then canceled a policy, the life insurance company must refund the pre-paid premium that was not applied to your coverage. This is known as an unearned premium for the life insurance company.
If you die during the grace period, your beneficiary gets the death benefit minus the past-due premium.
You can make a late payment in the grace period without being charged interest, and you will still be covered.
If you have feedback or questions about this article, please email the MarketWatch Guides team at editors@marketwatchguides.
