You have a million and one bills to pay, and sometimes one slips through the cracks and isn’t paid on time. This is never good. But, if you forgot to pay your life insurance premium on time, you don’t have to panic just yet. Here’s what you need to know about your life insurance grace period.
Life insurance policies come with what is known as a grace period. The grace period is a certain amount of time, specified by your insurer, that you can still pay your insurance premiums after they are due without a lapse in your coverage.
Each life insurance policy has a different grace period, so you need to read the fine print of your policy to determine what it is.
It is still best to always pay your premium on time. You should never rely on your life insurance grace policy, but you can relax a little bit if you missed your payment by a day or two.
What Is a Life Insurance Grace Period?
As mentioned, the grace period is the length of time after a premium is due that you can make a payment without your coverage lapsing. You may still have to pay some interest or a small fee for missing the payment due date.
If you pass away during the grace period, your life insurance policy is considered to be in good standing, and your beneficiaries will receive the payout.
The insurance company has the right to deduct the outstanding premium payment from the funds paid out to your beneficiary. Still, it won’t make much of an impact on what your beneficiary is receiving.
Max Life Insurance Grace Period
Most life insurance providers give you a grace period between 30 and 31 days; however, due to the COVID-19 pandemic, many providers have temporarily increased their grace period to 90 days.
What Happens When Life Insurance Lapses?
If you don’t make a payment during the grace period, your life insurance policy will lapse. This means you no longer have coverage, and your beneficiaries will not receive a payment if you pass away.
In many cases, a lapsed life insurance policy can be reinstated. Most insurance providers give you a 15- to 30-day window to reinstate your life insurance policy after your grace period runs out.
During that 15- to 30-day period, it is easy to reinstate your life insurance policy. Your insurance company won’t make you undergo a new medical examination or fill out any paperwork.
All you have to do to have your policy reinstated is pay the missed premiums.
The sooner you reinstate your life insurance policy after it has lapsed, the better. You don’t want to risk your beneficiaries not receiving a payout should you pass away shortly after your grace period expires.
Reinstating Life Insurance That Lapsed More than 30 Days after the Grace Period
Life insurance providers typically allow you to reinstate your lapsed life insurance policy for up to three or five years after it lapsed.
To have your life insurance policy reinstated, you’ll need to complete a reinstatement application and a questionnaire regarding your health to confirm that you are in the same health condition as you were when your original policy was approved.
The insurance company may also request your medical records from your doctor or ask you to undergo a physical examination. If you are not in the same health condition as when your original policy was granted, the insurance provider has the right to reject your reinstatement request.
If your original policy is reinstated, your premiums will be the same as before your policy lapsed.
The insurance company will ask you to repay all the missed premiums and can charge interest on the outstanding premium. You will usually be charged 6% interest.
At this point, you need to figure out if it is worthwhile to reinstate your previous life insurance policy or apply for a new one. Whether your health condition has changed or not, it may be less expensive to apply for a new life insurance policy than to pay the missed premiums and interest on your original policy.
If you choose to apply for a new life insurance policy, you may want to consider backdating it. Backdating your life insurance policy can save you money in the long run, but you will first have to pay premiums for the months that the policy is backdated.
How many months can a life insurance policy be backdated? These policies can generally be backdated up to six months.
Backdating your new policy by six months may help you fall into a lower age bracket and save you a lot of money on your premiums in the long run. Make sure you run the numbers before deciding if this option is best for you.
Staying Organized and Making Payments on Time
The best way to avoid the stress of being late on payments and potentially having to reinstate your life insurance policy is to have a system in place to ensure you always make your premium payments on time.
The easiest and quickest way to make sure you consistently pay your life insurance premium on time is by setting up automatic payments through your bank account.
In less than five minutes, you can set up your life insurance premium to be drawn automatically from your bank account every month. If you change banks, make sure you set up automatic payments at your new bank, or you run the risk of missing a premium payment.
If you don’t want to set up automatic monthly payments, you should set up a recurring reminder in your phone’s calendar.
Schedule the reminder for a couple of days before the payment is due to ensure you don’t miss a payment if your normal payment date falls on a weekend or holiday.
Finally, if neither of these options work for you, designate the premium payment to someone you trust. You can ask a family member or accountant to pay your premium every month on your behalf.
You shouldn’t immediately panic if you miss your life insurance payment date. Your insurance provider gives you a short grace period to pay your outstanding premium. But using your grace period is a bad habit to form.
Setting up a system that ensures you pay your life insurance premium on time every month is a much better way to save your money and ensure that your beneficiaries receive an insurance payout in the case of your death.
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