Many states require that the insurance company must notify the policyowner not more than 45 days or less than 15 days before the due date of the premium. That notice must specify the amount payable, when it is due (the due date), and where it is payable. Some of these statutes penalize the insurer who does not give timely notice by extending the life of the contract for some period of time (e.g., six months to a year) after the due date. But these laws (to prevent fraud from the part of the policyowner) allow the insurance company’s mail department to testify that the notice was mailed. Once that occurs, the burden often shifts to the policyowner to prove that it was not mailed. Even if this presumption is successfully rebutted, the policyowner must also have brought suit within the statutory limit after the due date.
Some insurers make what is known as a late remittance offer. This gives the policyowner an additional period of time after the grace period expires during which a lapse policy can be reinstated without the requirement that the insured prove insurability. The insured must, however, be alive on the date payment is tendered to the insurer. This late remittance offer does not extend the grace period.
Some statutes also allow the insurer to add interest on the unpaid and overdue premium, but for public relations purposes, many insurers will waive the interest charge even if they have the legal right to collect it.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM