Many Americans are struggling to pay bills as inflation is eating more out of people’s paychecks. If forced to decide whether to pay for groceries or, say, a life insurance premium, the choice is pretty clear.
That’s not to say life insurance isn’t important. In fact, now is not the time to be without a financial safety net for your loved ones if something happened to you and you were no longer around to support them. So if you’ve lost your coverage—or are afraid you will—because you haven’t been paying premiums, you can get your coverage back if you take the right steps.
Here’s what you need to know about reinstating a life insurance policy that you let lapse.
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What Happens If You Miss a Life Insurance Payment
Fortunately, missing one life insurance payment won’t result in losing your policy. Life insurance companies typically offer policyholders a 30- or 31-day grace period to pay premiums from the date they are due, says Erin Ardleigh, founder and president of Dynama Insurance, an independent insurance brokerage firm.
A policy is still in force during the grace period. If you were to die during that period, your beneficiaries still would get a payout. However, the insurance company would likely subtract the premium payment owed from the death benefit, Ardleigh says.
If you’ve missed a payment, Ardleigh recommends calling your insurer to pay what you owe by phone or logging onto your account to make a payment online. This will be the fastest way to fix the problem. If you can’t afford to pay insurance premiums now, discuss your payment options with your insurer.
How Long Can You Go Without Paying?
Although the length of grace periods are pretty standard, the amount of time you can actually go without paying premiums—and not lose your coverage forever—depends on the type of life insurance.
If you don’t make a payment on a term life insurance policy during the grace period, your policy will lapse. That means your policy will no longer be in force.
If you have a permanent life insurance policy, such as a whole life insurance policy, you might be able to go longer without making payments. If your policy has cash value built up, you could use it to cover premium payments. If you have a whole life policy, you might also be receiving dividends that could be used to offset premiums. Talk to your insurance company about whether these options are available to you and what impact they’ll have on your policy.
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What Happens When Life Insurance Lapses
Once a policy has lapsed, you no longer have coverage. That means the insurer does not have to pay a death benefit to your beneficiaries if you die.
But you may be able to reinstate a lapsed policy, depending on how long ago it lapsed. In fact, many companies will give you a 15- to 30-day buffer after a policy lapses to reinstate it without having to jump through any hoops. You’ll likely just have to pay the premiums you missed, Ardleigh says.
The sooner you act to reinstate a lapsed policy the better. If you wait, the process of getting your coverage back can be more involved. If you wait too long, you might not be denied coverage.
How to Reinstate a Lapsed Policy
Insurers typically allow three to five years to reinstate a policy after it lapses, Ardleigh says. However, they have certain requirements for reinstatement.
At a minimum, you’ll have to submit a reinstatement application, fill out a questionnaire about your health and attest that your health condition hasn’t changed since your policy was approved.
“It’s really important to be honest with them,” Ardleigh says. “If you lie, it could void your policy at death. Insurance companies don’t have to pay a claim if they can prove there’s a material misrepresentation you’ve made.”
Your insurer also might check your medical records from your doctor and require you to take a life insurance medical exam—as you may have done when you first applied for coverage. If your health has changed for the worse, the insurance company might not reinstate your policy.
If the insurer agrees to reinstate the policy, you will have to pay all of the premiums owed. Insurers also can charge interest on past due premiums. Ardleigh says a rate of 6% is common.
Benefits of Reinstatement
The benefit of reinstating an existing policy rather than applying for a new policy is that you’ll likely pay less. If your health hasn’t changed, your insurer will honor the original pricing on your policy, Ardleigh says.
If your health has changed, that could affect your rate (or your insurability). But your age won’t be a factor because the premium still will be based on the age you were when you first applied for coverage.
You wouldn’t get this preferential treatment if you were to apply for coverage with another insurer. Your rate would be based on your current age. Rates can go up 6% every year you are older, Ardleigh says. So if it’s been several years since you first got coverage, you could be looking at a much higher premium.
Ask your insurer to calculate how much you owe in interest and past payments. Then shop around for a new policy to compare prices. You might find you’d be better off getting a new policy.
What to Do If You’re the Beneficiary of a Lapsed Policy
Unfortunately, if you’re the beneficiary of a lapsed insurance policy, you likely won’t receive a payout when the insured dies. You’d be in luck if the insured died during the grace period. But you couldn’t reinstate a lapsed policy to get a death benefit after the insured’s death.
That said, it is always worth calling the insurance company and asking if it would let you pay the back premiums and file a claim, Ardleigh says.
How to Prevent a Life Insurance Lapse
Ideally, you don’t want to get to the point where your policy has lapsed. Take these steps if you’re having trouble making your payments.
Set up automatic payments
Reduce the risk of forgetting to make a payment (or not getting statements in the mail) by having your premium deducted automatically.
Ditch riders
You might be paying extra for life insurance riders that provide additional coverage that you don’t need to have. Asking your insurer to remove those riders might make your premium more affordable.
Take advantage of flexible premiums
If you have a universal life insurance policy, you might have the flexibility to adjust premium amounts.
Use cash value or dividends to cover premiums
The cash value in a permanent life insurance policy can be used to cover premiums temporarily. Dividends paid on whole life policies also can be used to offset premiums.
Switch from annual to monthly premium payments
If you have a large annual payment due, ask if you can switch to monthly payments to spread out what you owe.
Consider reducing your death benefit
You can lower your premium if your policy allows you to reduce the death benefit. You won’t be able to increase your benefit later. But at least you’ll have some coverage rather than none.
The key is to communicate with your insurance agent or insurance company to explore your options if you’re having trouble paying premiums or have a policy that has lapsed. Don’t assume that your only choice is to give up your coverage.