Many Americans struggle to pay bills as inflation eats up more of people’s paychecks. if you are forced to decide whether to pay for the purchase 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 were to happen to you and you were no longer around to support them. So if you’ve lost your coverage, or are afraid you might lose it, because you haven’t been paying your premiums, you can get your coverage back if you take the right steps.
Reading: Insurance policy lapse what happens
Here’s what you need to know about reinstating a life insurance policy that you let lapse.
what happens if you miss a life insurance payment?
Fortunately, missing a life insurance payment will not result in the loss of your policy. Life insurance companies typically offer policyholders a 30- or 31-day grace period to pay premiums after they are due, says Erin Ardleigh, founder and president of Dynama Insurance, an independent insurance brokerage firm. .
A policy is still in effect during the grace period. if he died during that period, his beneficiaries would still receive a payment. however, the insurance company would likely subtract the premium payment due from the death benefit, says ardleigh.
If you haven’t made a payment, ardleigh recommends calling your insurer to pay what you owe over the phone or logging into your account to make a payment online. this will be the fastest way to fix the problem. If you can’t pay your insurance premiums now, discuss your payment options with your insurer.
how long can you go without paying?
Although the length of grace periods is fairly 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 miss 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 may be able to go longer without making payments. If your policy has accumulated cash value, you can use it to cover premium payments. If you have a whole life policy, you could 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 will have on your policy.
what happens when life insurance expires
Once a policy has expired, it is no longer covered. that means the insurer doesn’t have to pay a death benefit to your beneficiaries if you die.
but you may be able to reset an expired policy, depending on how long it has expired. in fact, many companies will give you 15 to 30 days after a policy expires to reinstate it without going through any hurdles. you’ll likely only have to pay the premiums you missed, says ardleigh.
The sooner you act to reinstate an expired policy, the better. if you wait, the process of getting your coverage back can be more complicated. if you wait too long, you may not be denied coverage.
how to reset an expired policy
Insurers typically give three to five years to reinstate a policy after it expires, Ardleigh says. however, they have certain requirements for reinstatement.
At a minimum, you will need to submit a reinstatement application, complete a questionnaire about your health, and certify that your health status has not changed since your policy was approved.
“It’s very important to be honest with them,” says Ardleigh. “If you lie, it could void your policy when you die. insurance companies don’t have to pay a claim if they can prove you made a false statement.”
Your insurer may also check your medical records with your doctor and require you to undergo a life insurance medical exam, just as you may have done when you first applied for coverage. If her health has worsened, the insurance company may not reinstate her policy.
If the insurer agrees to reinstate the policy, you must pay all premiums due. Insurers may also charge interest on overdue premiums. ardleigh says that a rate of 6% is common.
The advantage of reinstating an existing policy rather than applying for a new one is that you will likely pay less. If your health hasn’t changed, your insurer will honor your original policy price, Ardleigh says.
If your health has changed, that could affect your rate (or your insurability). but her age won’t be a factor because the premium will still be based on how old she was when she first applied for coverage.
You would not receive this preferential treatment if you applied for coverage with another insurer. your rate would be based on your current age. Rates can go up 6% each year it’s higher, 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 estimate how much you owe in interest and past payments. then shop around for a new policy to compare prices. you may find it would be better to get a new policy.
what to do if you are the beneficiary of an expired policy
Unfortunately, if you are the beneficiary of an expired insurance policy, you may not receive a payment when the insured dies. you’d be in luck if the insured died during the grace period. but was unable to reinstate a lapsed policy for a death benefit after the insured’s death.
That said, it’s always worth calling the insurance company and asking if they’ll allow you to pay back premiums and file a claim, says ardleigh.
how to prevent expiration of life insurance
Ideally, you don’t want to get to the point where your policy has lapsed. Follow these steps if you are having trouble making your payments.
set up automatic payments
Reduce the risk of forgetting to make a payment (or missing statements in the mail) by having your premium automatically deducted.
You may be paying more for life insurance riders that provide additional coverage you don’t need to have. asking your insurer to remove those riders could make your premium more affordable.
take advantage of flexible premiums
If you have a universal life insurance policy, you may have the flexibility to adjust your premium amounts.
use cash value or dividends to cover premiums
The cash value of a permanent life insurance policy can be used to temporarily cover premiums. Dividends paid on whole life policies can also be used to offset premiums.
change 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 lowering your death benefit
You can reduce your premium if your policy allows you to reduce the death benefit. you will not be able to increase your benefit later. but at least you’ll have some cover instead of nothing.
The key is to contact your insurance agent or insurance company to explore your options if you are having trouble paying your premiums or have an expired policy. don’t assume your only option is to drop your coverage.