Lapse in Your Life Insurance Policy?
These can be the worst words heard involving life insurance: “my policy has lapsed”. While some people purposely let their policies lapse, for the most part it is not good news when you get a letter from your carrier saying your policy has been terminated. Let’s look at some of the reasons why your policy may lapse and what can be done once it has.
Don’t forget to tell the insurance company you’ve moved! This has to be the number one reason for an inadvertent lapsed policy. It's easy to see how it happens too. You may have purchased you life insurance decades ago, and I’m sure correcting your address with the carrier is the last thing on your mind after a move.
The second main reason for a life insurance policy lapsing is not paying the premiums on time. For term life insurance, your premium payment is due at the carrier by a certain date. If your payment is not received, they will generally give you another 30 days to get the late payment in before the policy is terminated. For permanent life insurance, you really want to keep an eye on the cash value. Policy changes are deducted from the cash value each month. In general, once the cash value has been depleted – and assuming no further premium payments are made – the policy will terminate.
Ok, so your policy lapsed – what options do you have? First, contact the carrier and find out their process for your situation. You may still be in that ‘grace period’ and simply need to make the payment. Assuming you are past that point though, you have a couple potential options:
Reinstatement: You can apply for reinstatement of the policy that just lapsed. There is typically a short application that needs to be completed and the carrier reserves the right to do a current review of your medical history (i.e.; you will be going through the underwriting process again). If approved though, you will need to pay the premiums to bring the policy current and the policy will continue on as if it never lapsed. This is a good option if you’re early in a term period or have paid significantly into a permanent policy.
Apply for new coverage: You are going to go through some form of underwriting again if you have chosen to go the reinstatement route. It would be wise to look at purchasing new coverage as well. If you were close to the end of a term period or recently purchased permanent coverage that lapsed, looking at fresh options, in my opinion, is a good idea.
About the author: Seth Gowdy is the Sales Manager for Pivot Insurance and holds multiple insurance and securities licenses. He has been part of the financial services industry for nearly 20 years. In his free time he enjoys being outdoors fishing, hiking, and geocaching with his wife and two children. Seth most enjoys helping clients with Pivot’s anonymous life insurance quote process and needs calculators. You can reach Seth at 1-800-651-1953 or SGowdy@pivot.com.