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Reviewed by:To keep your life insurance policy active, you need to make payments. But what happens if you miss a payment? Your life insurance policy grace period provides a safety net to prevent it from lapsing after a missed payment, allowing you to temporarily retain coverage so your beneficiaries will still receive a benefit if something happens to you during that time.
However, grace periods vary by insurer and there may be repercussions if you want to reinstate a policy after the grace period ends. In this post, we’ll explain what a life insurance policy’s grace period is along with other helpful information about it.
What is a life insurance grace period?
A life insurance grace period is the amount of time you have to make a payment after your premium is due to prevent the policy from lapsing. The grace period is generally 30 days, but varies by policy and insurance provider. The grace period provides a cushion so that you’re policy doesn’t lapse if you miss a payment, and your coverage will continue until the end of the grace period.
How long is the grace period for life insurance?
The grace period for a life insurance policy is typically 30 days, but may be different based on your policy and insurance provider. It’s best to check your policy documents or contact your insurer to confirm your grace period, especially if you’re worried about making a payment that could extend beyond it.
How does a life insurance policy’s grace period work?
Your grace period kicks in when you miss a premium payment on your life insurance policy, starting a countdown on the amount of time you have to make the payment before your policy lapses.
During the grace period, you’ll retain life insurance coverage, which means your beneficiaries will still receive a death benefit if something happens to you during this time. However, any benefit will have the unpaid premium taken out before being paid to beneficiaries.
You can make the payment at any point during your grace period to maintain coverage, though you’ll need to make up for all missed premiums. So if your policy has a 60-day grace period and you’ve missed two monthly payments, you’ll need to pay both of those to prevent the policy from lapsing. Additionally, some insurers may charge a late fee for payments during the grace period.
Do all life insurance policies have a grace period?
Not all life insurance policies have a grace period, but most offer them because insurance companies would prefer you to keep your policy and continue being their customer.
What happens if you don’t make a payment within the grace period?
If you don’t pay the outstanding balance of missed payments during the grace period, your life insurance policy will be terminated.
One exception to this is if you have a permanent life insurance policy with cash value. If your cash value is enough to cover the missed payments, it may be tapped into to keep the policy active. In fact, some policies may use accumulated cash value to cover the missed payment instead of starting the grace period. In that case, the cash value would be used to maintain the policy until the balance is too small to pay premiums. This means you could miss a payment and use cash value to cover the policy for months or years before the grace period starts.
If you have a term life insurance policy or a permanent policy with insufficient cash value to cover your premium, your grace period would start immediately after the missed payment.
Can you reinstate a life insurance policy after the grace period?
If you don’t make a payment during the grace period and your policy lapses, you may be able to reinstate it at a later point. Most insurers have a reinstatement period ranging from 2 to 5 years that allows you to reinstate your policy, but you’ll be required to pay outstanding premiums and any applicable interest or fees.
Insurers have different policies about reinstatement, and the process may also vary based on how long it’s been since your policy lapsed. If you apply for reinstatement right after a lapse, you may only be required to fill out a reinstatement application and take care of any costs. However, some insurers may require you to take a new medical exam or answer additional questions about your health. This is more likely if you’re applying for several years after the policy lapsed, since your health may have changed in that time. If your health has changed significantly, the insurer might raise your premiums or deny you coverage.
Once you’ve completed all steps required by the insurer, the insurance company will review your application which might take a few weeks. If your reinstatement application is approved, you’ll receive written notice about your policy details and your coverage will be restored.
How to avoid a lapse in life insurance coverage
There are several reasons why you might miss a life insurance payment. It could be that you simply forgot, or maybe there was an unexpected emergency expense like a medical bill or home repair. Some people may also find it hard to keep paying life insurance, especially in retirement when your budget might be tighter due to inflation and living on a limited income.
If you’re concerned about missing a payment and lapsing your life insurance policy, here are a few things you can do:
- Set up automatic payments
- Create reminders to make payments
- Update your coverage to make it more affordable
If you find yourself in a situation where you can no longer afford your policy, don’t let it lapse. By lapsing your policy, you won’t get anything back from it. At the very least, find out if you can sell your life insurance policy through a life settlement. According to LISA’s 2023 Annual Market Data Collection Survey, policyholders received an average of $262,000 from selling their policy — well worth your time if you’re in your policy’s grace period and nearing a lapse that would result in nothing. Don’t let your policy lapse, find out if you can sell your life insurance policy and for how much with our life settlement calculator.
