What happens when a term life insurance policy lapses

Life Insurance Reinstatement Form

We all get busy and let the “little things” slip through the crack sometimes.

This, however, wasn’t a little thing.

In the hustle and bustle of the holidays, building a new home, a second child on the way (and now here) a “little” bill was overlooked and wasn’t paid.

This wasn’t my Direct TV bill or the electricity bill..

It was my annual premium for my 30 year term life insurance policy! (gasp).

A month had passed before I realized that my insurance policy had lapsed.  Frantically, I called the insurance company to find out what my options were.  In case you ever let your life insurance policy lapse, here’s what you need to know.

How Did I Let My Life Insurance Policy Lapse?

I know what you’re thinking.  He’s a CERTIFIED FINANCIAL PLANNER™ professional and he let his life insurance policy lapse?  Right now I have 3 separate term life policies.   When my wife and I first got married we purchased a $250k 30 year term life policy on myself.  After we had our first child, I decided to purchase another 30 term life policy for $500k.

After we just built our new house and had a second child, I decided to stop messing around and purchased a $1 million term policy.   My initial intention was to let the $250k lapse, although I later decided to just keep them all.   I told my wife of my intent, but she thought that I meant to let the $500k policy lapse.   Woops!

Note: Here’s my post that discusses how much life insurance you should buy.

Insurance Policies Have Grace Periods

When I called the insurance company, I learned through the recording that they have a grace period.  When you pay your premiums regularly, your policy remains “in force,” but when you miss a payment, your life insurance company is required to give you a 31-day “grace period” in which to catch up. At the end of the grace period, if you haven’t submitted your back premiums to the life insurance company, your policy will lapse.  This is basically what happened to me.

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I was fortunate to be in a  financial  position where there wasn’t a real problem letting the policy lapse.  I had plenty of other coverage to take care of my wife and kids.  Even if I had to go through the medical exam again, I know that I would still have received a preferred rate because of my excellent health.  (Working out and eating healthy pays off!) Don’t let my luck fool you.  Be sure to stay on top of your life insurance policies.

Lapsed Insurance Policy Could Be Bad

Many insurance companies, when offering life insurance coverage to an individual, don’t check to see if the individual has had coverage before, or if that coverage has lapsed. But some life insurance companies do check to see if you’ve had coverage lapses in the past. If you have, they may choose not to offer coverage to you in the future, which means you’ll have a very hard time finding the protection you and your family need, even if you’re able to better afford it than you were in the past.

Application for Reinstatement

When your policy lapses, I learned that it isn’t necessarily the end of the world for your life insurance protection. I was informed that you can request an application for reinstatement.  (You can see the picture of the application above).  I simply had to answer a few health related questions and enclose the check for the missed premium amount.

Double Check With Your Insurance Company

Each company handles the reinstate process differently, but in general, you’ll be asked to pay all of your back premiums, and you’ll only have about five years within which to request a reinstatement. As long as your health status hasn’t changed, reinstatement can be very simple. If your health has changed, however, it may not be possible to have your old policy reinstated – another reason to be sure that you keep the policies you have in force.

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Comments | 5 Responses

  1. Robyn Sharpe says

    What happens when a person allows their life insurance policy laspse and then passes away? Can they receive the money that was paid into the policy?

    • says

      @ Robyn

      For a term policy, there is no cash value so there would be no money passed onto your beneficiaries.

      If you have some sort of permanent policy (whole life, universal life, etc) then your heirs would receive the cash value.

  2. Michael mcvicker says

    Even if the policy had lapsed 4 years ? she didnt realize that it had and when I figured it out was like Feb15th 2010 I called the agent he said she would have to pay something like nearly 1000.00 and that is all she got a month on social security, she took sudden ill in march and died april 4th 2010 before we could get them paid, and she had some kind of premium wavior on that policy, they wouldnt pay and Im pretty sure she should have been covered to some extent.


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