How long do you have to reinstate a lapsed life insurance policy

In order for a life insurance claim to be paid, several requirements must be met: there must be valid coverage at the time of the insured’s death, the beneficiary must produce a certified copy of the death certificate and file a notice of claim, and the insurance company must make sure the claim is payable (e.g., policy exclusions do not apply).

The most important requirement of all, however, is the existence of valid coverage at the time of the insured’s death, since a claim can only be paid if the coverage was in effect. An active policy at the time of death means that the policyowner paid the policy premiums on time and did not allow the policy to lapse. If the policyowner missed premiums and the insured died before reinstating the policy, even if a claim is filed, the insurance company will likely use this as a reason to deny paying benefits. There are many factors that affect the validity of a policy lapse. 

In this article, our life insurance attorneys will explain what happens when the policyowner fails to pay life insurance premiums and what you should do if you are the beneficiary of a lapsed policy.

What Happens if the Life Insurance Policy Is Not in Force at the Time of Death?

A lapse happens when one or more premium payments on a life insurance policy are not received on the due date or during the grace period. When a life insurance policy lapses, the policy is no longer active (not “in force”) and the insurer is no longer legally obligated to pay the death benefits to the insured’s beneficiaries. Not all life insurance lapses are valid and a life insurance claim denied because the policy had lapsed may still be recovered.

Will Life Insurance Pay if the Insured Dies During the Grace Period With No Premiums Paid?

A life insurance grace period is a time period of usually 31 or 60 days (it varies in different states) which begins on the date a premium is due and is not paid. Generally, the policy stays active during the grace period. This means that if the insured dies during the grace period, the claim will be paid even if no premiums were paid during the grace period. If, however, the grace period ends and no payment is made, the insurer may treat the policy as lapsed and will deny any claims where deaths occur after the end of the grace period. 

Many states required that insurance companies extend the grace period during the coronavirus pandemic. However if a payment was not made during the extended grace period, insurers will deny the benefits claim due to policy lapse.

Life Insurance Law Regarding Payment Lapses: What Can Cause Wrongfully Denied Claims

Laws in many states provide wide protection to beneficiaries and policyowners by placing restrictions on insurance companies in regard to when a policy may lapse. Both life insurance companies and policyowners have certain responsibilities when it comes to keeping policies in effect. 

A Policyowner’s Responsibilities

Policyowners are responsible for making sure their policy does not lapse by paying premiums on time. If premium payments are automatically drawn from a bank account, it is the policyowner’s responsibility to make sure the account always has sufficient funds to cover premiums. If a premium is not fixed and may increase, it is the responsibility of the policyowner to keep track of increased premiums payments to make sure a correct amount of premiums is submitted to the insurance company.

Finally, life insurance companies tend to communicate to policyowners via regular mail. Important policy documents such as premium-due notices, grace period letters, premium increase letters and lapse notices usually arrive in the mail to the address last known to the insurance company. It is the policyowner’s duty to timely inform the insurer of address change, bank account closure, etc. If the policyowner is not able to receive mail, he/she must designate another person to receive and read important life insurance notices. 

A Life Insurance Company’s Obligations

Policyowners are not the only ones who have duties under a life insurance contract and laws. Insurance companies also have certain obligations. These obligations differ from state to state and may include the following: 

• Send the policyowner a premium-due notice to the correct address. Keeping an updated record of the policyowner’s correct address may seem easy. Still, hundreds of life insurance claims get denied routinely, because an insurance company sends a premium-due notice to an insured’s old address or to the wrong address. 
• Send a premium-due notice to the policyowner within a certain time period. If the policyowner does not receive a premium due notice during that specific time frame, he/she may not even find out that a premium is due before the lapse. This is especially true for situations where premiums are paid annually or where a premium is automatically withdrawn from the insured’s bank account.
• Provide the policyowner with a lapse notice that complies with state laws. These statutes vary from state to state, but they are all designed to protect policyowners and beneficiaries from wrongfully lapsed life insurance policies. They usually require an insurer to send specific, clear lapse notices that tell the policyowner exactly when the premium is due, when the grace period begins and when the policy will lapse if a missed premium is unpaid.
• Send annual notices to policyowners informing them of their right to designate a third party to receive mail about due premiums. Several states have enacted protections to shield consumers from losing life insurance coverage because of a missed premium payment. These laws require that insurance companies annually send policy owners letters asking them to designate another person to receive their premium due notices, grace period and pending policy termination mail in case of an illness or incapacity. These requirements protect policy owners — including elderly, hospitalized, or incapacitated those who may be particularly vulnerable to missing a premium payment — from losing coverage.

Life Insurance Lapse Law in California

In California, insurance companies cannot terminate a policy for a missed payment if they failed to send policyowners annual notices advising them of their rights to designate a third party to receive premium-due notices. If the policyowner designates a third party to receive premium-due notices, insurance companies are obligated to send lapse notices not only to the policyowner but also to the designated person. If the insurance company failed to comply with this state law and lapsed your policy, you may recover the full amount of your benefit. Our lawyers explain more about this in our article on the California life insurance lapse law.

Employer-Provided Life Insurance and Policy Lapses

An employer-provided group life insurance policy may also lapse due to non-payment of premiums. This usually happens when an employee is terminated or retires. In group life insurance cases governed by ERISA, employers have a duty to timely provide correct information regarding life insurance benefit changes to their employees. If there is an option to convert or port group coverage, employers may have a duty to notify the employee that their policy may terminate and they need to port or convert the group policy to an individual policy. Unless the insured fills out a conversion/portability application and submits it to the insurance company within a designated time frame, the policy will lapse.

If you or a loved one have issues with a denied ERISA claim, our lawyers can help. We have successfully handled many cases where life insurance companies denied coverage due to lapsed policies. Call us at (888) 510-2212 for a free case evaluation.

Are You the Beneficiary of a Lapsed Life Insurance Policy?

Life insurance claims denied due to lapse are very common and insurance companies often use nonpayment of premiums as a reason to deny a claim even when it should be paid. As a beneficiary, you have the right to know whether the insurance company sent premium-due notices to the correct address,  whether the notice clearly warned the insured of the impending lapse and grace period and whether it gave the policyowner the exact date of when the policy will lapse if a missed premium is unpaid.

If the insurer fails to meet any of these obligations, you may have a chance of recovering your death benefits. However, many policyowner and beneficiaries are not aware of these laws and may take the insurance company’s denial as the final verdict.

When a life insurance claim is not paid because the insurance company claims the policy has lapsed, you need to speak to a life insurance lawyer to understand your rights as a beneficiary. The insurer may have made a mistake in denying your claim or there may be new life insurance laws in place which provide more protections to you as the beneficiary. If your life insurance claim has been denied, call our life insurance lawyers now for a free consultation. Call (888) 510-2212.

We work on a contingent fee basis – you pay attorney fees only if we win your case. We take pride in offering competitive contingent fee structures and will work with you to ensure you are comfortable with the fee.