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).
Insurance Policy Lapse
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 any different types of life insurance policy lapse, here’s what you need to know.
Avoid Lapsing with Ladder Life Insurance
A payment slipping through the cracks is one reason your policy might lapse, but it isn’t the only one.
Sometimes individuals run into unexpected hits like job loss or the expense of caring for a sick loved one and find themselves unable to afford the policy premiums they originally agreed to.
Enter the dynamic life insurance policy. With a life insurance company like Ladder, there’s no need to default on payments.
If you find your policy is too much to bear, or conversely, you need more in force, you can adjust your life insurance policy to meet your changing needs.
Laddering down your coverage, as the company refers to it, can help make your premiums more manageable and keep your policy in force whatever life brings your way.
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. Whoops!
Note: Here’s my post that discusses how much life insurance you should buy.
What to Do When Your Life Insurance Policy Lapses
So, your policy has lapsed, now what do you do?
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. 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 of the top rated 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.
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 of Lapsed Policy
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 life insurance 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.
Final Thoughts on Policy Relapse
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.