How long do you have to reinstate a lapsed permanent life policy?

Your life insurance provider has sent you a lapsation notice on your policy. Now what? The sad truth is you’re at risk of losing all the money you’ve spent on insurance premiums to date. But here’s some good news: You may still have time to turn things around and recoup some value from that life insurance coverage.

Table of Contents Show

What is a lapsation in life insurance?
What is the grace period for a life insurance policy?
Common reasons for a lapsation in life insurance coverage
Can you reinstate a life insurance policy after it lapses?
What to do before a life insurance policy lapses
When you can afford the premiums
When you can’t afford the premiums
What to do after a life insurance policy lapses
1. Check your reinstatement rights.
2. Estimate the market value of your policy if you qualify for a life settlement.
The Grace Period
Reinstatement Shortly After the Grace Period
Reinstatement After Lapse
The Grace Period
Reinstatement Shortly After the Grace Period
Reinstatement After Lapse

This guide to life insurance lapsations covers what you need to know about grace periods, reinstatement options, and how to maximize your policy’s value even as you’re facing lapsation. Read on to learn what steps you can take to protect your life insurance investment, before and after a policy lapse.

What is a lapsation in life insurance?

A lapsation in life insurance is the termination of your coverage that results from nonpayment of premiums. The timeline from a missed payment to a lapsed policy can be 30 days or several months, depending on your policy’s grace period and the type of insurance you have. A term life policy, for example, will lapse at the end of the grace period if you don’t catch up on past-due premiums. A permanent life policy may stay in force longer because your insurer will use any accumulated cash value to make the premium payments on your behalf. The policy won’t lapse until after the cash value balance is depleted. That could take months or years, depending on the age of the policy.

Once the grace period expires and any cash value runs dry, your coverage lapses. That lapsation means you have no life insurance coverage. If you pass away, your beneficiaries will not receive a death benefit.

What is the grace period for a life insurance policy?

A grace period for life insurance is usually 30 or 31 days, but it does depend on who your insurance provider is and on the type of the policy you have. Check your policy documentation or contact your insurer to find out the exact length of your grace period.

Common reasons for a lapsation in life insurance coverage

Life insurance lapsations are fairly common, and they can be intentional or unintentional. An address change or a banking change, for example, can be the culprit in an unintentional lapse. If you pay your premiums only once annually, you might easily forget to notify your insurer that you’ve moved or switched banks. Even if you’ve forwarded your address with the post office, you might not receive the past-due notices until well into the grace period — simply because of the delay involved in forwarding your mail.

You might lapse your policy intentionally for financial reasons. This happens when you have more coverage than you can afford or if your financial situation has changed since you bought the policy. For example, if you are unable to pay the premiums due to a financial hardship, or if you decide you don’t need coverage anymore so opt to simply stop paying. Either way, simply letting your policy lapse is not the best course of action. You have options, such as switching to a more affordable policy or selling your policy through a life settlement in order to recoup some if the money you’ve put in over the years.

Can you reinstate a life insurance policy after it lapses?

Yes, some insurers allow you to reinstate lapsed life insurance for a certain period of time. That timeframe can range from six months to two years. Know that you will have to repay all missed premiums. You may also have to share your recent medical records to prove you are still insurable.

What to do before a life insurance policy lapses

If you are worried about your life insurance lapsing soon, here are the steps to take in order to maintain coverage or get the most value from your policy.

When you can afford the premiums

If you are financially able to make the payments going forward, take these steps to protect the value of your life insurance.

1. Enroll in automated premium payments.

Your insurer should have an option for you to enroll in automated premium payments. If so, set this up by providing your banking information to the insurer.

2. Set a six-month recurring reminder to check your settings.

This is a useful tip for any type of bill you pay quarterly or annually. Put a recurring reminder in your smartphone or on your calendar to check your payment settings and contact information with your insurer every six months. When the reminder pops up, take five minutes to call your insurer and verify that your information is current.

3. Read your mail.

Your insurer should send you multiple written notices when your policy is at risk of lapsing. It’s easy to overlook these or mistake them for junk mail. Be disciplined about opening and reading your mail, even the pieces that don’t look like anything important. This takes a few minutes a day at most and can spare you from losing tens of thousands of dollars by inadvertently lapsing your life insurance.

When you can’t afford the premiums

If you can’t afford your life insurance premiums, your action steps are somewhat different. Instead of focusing on keeping your policy in force, think in terms of maximizing the value you get from that policy. Your end goals would be to replace the expensive policy with lesser coverage you can afford or get the most value out of your current policy if you no longer want coverage. Here are three steps you can take to move in that direction.

1. Know your grace period.

You have the most flexibility to capture value from your life insurance before your policy actually lapses. Make a plan to choose a strategy before your grace period expires. If you don’t know how long your grace period is, call your insurer and find out. Mark that date on your calendar. If that date has already passed, jump down to the next section to find out what you can do after your insurer lapses the policy.

2. Check your cash surrender value.

If you have a permanent life insurance policy, you have the option to surrender the policy to the insurance company for a small cash sum known as the cash surrender value. In order to find out how much you’d get by surrendering your policy, you’d need to contact the insurance company. However, we advise against surrendering your policy because you can typically get far more money by selling it through a life settlement if you meet the eligibility requirements.

3. Find out if you qualify for a life settlement.

A life settlement is the sale of your life insurance to a third-party investor for a lump sum of cash. This transaction can generate two to four times more cash than a surrender. To find out if your policy qualifies, contact Harbor Life Settlements for a free, no-obligation review and estimate of your policy’s market value. With that number in hand, you can decide which strategy best serves your needs.

What to do after a life insurance policy lapses

If your grace period has expired and the coverage is already lapsed, surrendering won’t generate any cash — because your insurer has already spent your cash value on premium payments. But you’re not out of options yet. You may be able to reinstate your policy and then sell it for cash in a life settlement. Take these two steps to see if that’s a viable strategy.

1. Check your reinstatement rights.

Contact your insurer and ask for detailed instructions on reinstatement. You need to know how long you have to repay past-due premiums and any other steps you should take including providing recent medical records to get reinsured.

2. Estimate the market value of your policy if you qualify for a life settlement.

If you haven’t already asked Harbor Life Settlements to prequalify your policy for a life settlement, do so now. You need a reliable estimate of your policy’s value so you can compare that number to the cost of reinstating your policy. When the market value of your policy is higher than the reinstatement costs, you can generate net cash by reinstating and then selling your policy in a life settlement.

The vast majority of the time, you want to avoid a life insurance lapse. You might be free of premium payments after a lapsation, but you end up with nothing in return for the premiums you’ve already paid. You’re better off recouping some value by reinstating your policy and then selling it through a life settlement if you qualify. To learn more about this process, contact the Harbor Life Settlements team for a free policy assessment.

If you miss premium payments on your life insurance policy, you typically have a certain number of days to pay back owed premiums without the policy lapsing. Even if your policy has been terminated due to missed premiums, you can typically seek to reinstate your policy. If it has only been a few days since your policy has lapsed, you can likely reinstate the policy without much hassle. If it has been several months or years, you might be able to reinstate your policy, but you will likely have to go through a reinstatement process with a new application.

The Grace Period

If you purchase a life insurance policy in California, you have a grace period after your policy premium due date within which you can pay your premium without incurring any sort of penalty. In California, the grace period is at least 30 days following the due date of your premium, and it may even be longer. Due to financial difficulties experienced by many during the novel coronavirus pandemic, most life insurance companies have extended their grace period to 60 or 90 days.

During the grace period, your policy is still in effect. If the insured party passes away after a missed payment but within the grace period, the insurance company must still pay out on the claim, although they will likely deduct any missed premium from the benefits payout. If the insured party dies after the grace period without paying their premium, then the policy might have lapsed and the insurer could reject the claim.

Whether your policy lapses immediately after the grace period depends in part on the type of life insurance policy. Term life insurance policies will typically lapse at the end of the grace period. For permanent (whole) life insurance policies, however, you may be able to go longer without paying premiums. If your policy has cash value built up, your insurer can use that value to cover payments; once the cash value has been used, the policy will lapse. Dividends from whole life policies may also be used to offset missed premiums.

Reinstatement Shortly After the Grace Period

If you fail to pay your premiums during the 30-, 60-, or 90-day grace period on a term life policy, your policy will likely lapse. However, many insurers will allow you to reinstate your policy if you are willing and able to pay your overdue premium shortly after the policy lapse. Often, insurers will give you an additional 15- to 30-day time buffer to reinstate your policy without needing to go through a whole reinstatement process with a new application.

Note that your policy will still have lapsed at the end of the grace period, meaning that if you pass away before reinstating your policy, the insurer can deny coverage based on a lapsed policy.

Reinstatement After Lapse

If you fail to make payments during the grace period or within the additional buffer time after the lapse, then you may still be able to seek reinstatement of your policy rather than having to purchase an entirely new policy. Typically, insurers allow parties to reinstate a lapsed policy within three to five years after the lapse. The process will be more labor-intensive than simply paying during the grace period, however.

You will likely need to submit a reinstatement application, which will include answering questions about the current state of your health, finances, and other factors. You will need to demonstrate that your health has not substantially changed since when you obtained your original policy. You may need to submit medical records or even undergo a medical examination to demonstrate your current health. If your reinstatement application is approved, you might need to pay back all owed premiums, with interest.

If your health has changed significantly, your reinstatement application might be denied, and you could need to purchase an entirely new policy. If your health is relatively unchanged, however, then you might be able to reinstate your existing policy at the rate you were paying before lapse. If you have advanced much in age since your initial application, then a reinstated policy is likely to be much cheaper than purchasing a new policy.

Note that reinstatement may restart the “contestability period” for policy rescission. That means that if you die within two years of reinstatement, the insurer can review your application for misstatements and omissions. If they discover any material misstatements or omissions on your reinstatement application, they could use that information to deny your claim and rescind your policy.

Life Insurance Claim Denied? Call Gianelli & Morris.

If you are a California policyholder or beneficiary struggling to get the benefits you paid for, call the insurance law attorneys Gianelli & Morris for a free consultation regarding your claim.