My Life Insurance Policy Lapsed – Now What?

As we wind down from the holidays, many people are so exhausted that they neglect daily responsibilities, such as paying that life insurance premium. You are relieved that the bills have been paid on time as you begin to sort through the mounds of papers or digital notices.

Except for the one envelope you just opened. Notice of your life insurance premium. You dash to the phone and dial the insurance company’s number.

Fortunately, it was only 10 days late, and there is usually a 31-day grace period. Technically, if something happened, the insurance company is required to pay the death benefit within 30 days. However, your policy will expire at the end of that time period.

What happens next?

Reinstatement provisions differ between states and insurance companies. Life insurance policies in New York must include a provision granting the policy owner the right to reinstate the policy at any time within three years of the date of default unless the policy has been surrendered for cash value.

The conditions for reinstatement are that you provide satisfactory evidence of insurability, pay all overdue premiums plus interest at 6% per year, and repay or reinstate any policy loan outstanding when the policy lapsed, plus interest.

Many companies will send you a letter after a certain number of months from the date of default, offering you the option to reinstate without a new medical exam for a fee, which can be more cost-effective in the long run, especially if you have new health concerns.

If your monthly premiums are only $15 and your policy has been lapsed for six months, you are probably better off paying the back premiums and sticking with the same policy and company.

Many states and insurers allow you to reinstate during the policy’s term. So, if you purchased the policy in 2010, it expired this year, and it had a 10-year term, you have until 2020 to reinstate it. However, the cost of previous premiums may be too high to justify continuing the policy.

A new policy may be preferable. Insurance companies will inquire about your credit history, but failing to pay premiums on another insurance policy will not affect your premium rate for a new policy.

Remember that the ability to reinstate a policy is not guaranteed by law, so its availability may vary between life insurance companies and states.

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