What Is a Life Insurance Grace Period and How Does It Work?

A life insurance policy provides financial security for insureds and their beneficiaries in exchange for regular premium payments by the policyholder. Paying a premium in time is essential to keep the life insurance policy in force. However, missed payments happen. To protect people from an inadvertent policy lapse due to a missed premium insurance laws require companies to provide a grace period – a certain time frame after the missed premium during which the policy stays in effect. Grace periods allow policyholders to make a missed premium payment and avoid a lapse.

In this article, our life insurance lawyers explain everything you need to know about a life insurance grace period. They will use their experience in handling denied claims due to lapse to help beneficiaries understand how a grace period might impact their claim.

Definition: What Is a Life Insurance Grace Period?

A life insurance grace period is a set period of time that begins on the date a premium is due but unpaid and during which the policyowner can make a premium payment without losing coverage. Usually, grace periods are set by state laws and life insurance contracts (which may sometimes provide for a grace period that is shorter or longer than what is required by the law). The policy defines not only how long the grace period is, but also what happens if the insured fails to pay the premium within the grace period.

How Long Is the Grace Period for a Life Insurance Policy?

Typically, life insurance policies have a grace period of 30 to 60 days depending on the state and the insurer. For instance, in Pennsylvania, the grace period for life insurance policies is 30 days, while in California it is 60 days. If you have a life insurance policy that lapsed in California, read our attorneys’ blog post about the life insurance lapse law in California.

Insurers may extend the grace period in certain circumstances – as some did during the COVID-19 pandemic. You can learn more about this scenario from our article on life insurance and coronavirus.

How Does the Life Insurance Grace Period Work?

Life insurance grace period protects policyholders from immediately losing coverage if they are late with a premium payment. During the grace period, the death benefit coverage continues in force and allows for a late premium payment. The policyholder can pay the missed premium at any time during the grace period to continue the coverage. If the insured dies during this period, the insurance company will have to pay the claim.

Failure to pay the premium due by the time the grace period ends results in a life insurance policy lapse. However, life insurance policies often include a reinstatement period, during which the policyowner can apply to have the same (lapsed) coverage reinstated.

The reinstatement period starts from the date of the lapse/policy termination and typically extends for up to 3-5 years. It is best, however, to apply sooner rather than later, as the reinstatement process greatly varies depending on how much time has passed since the policy lapsed. The longer the insured person waits to get the policy reinstated, the more complex the process gets.

  • 15-30 days or less: Typically, a life insurance policy may be reinstated within a 15-day period without any additional paperwork or a medical examination. The policyholder may be required to sign a statement of health and settle all unpaid premiums, potentially with a fee.
  • 30 days to six months: To reinstate a lapsed policy, the policyholder must apply for reinstatement and also sign documents stating that no significant, potentially harmful changes in health occurred after the policy lapsed. 
  • 90 days to five years: Insurance companies have different requirements for this time frame, so it is best to speak to the insurance company regarding reinstatement. In most cases, the insured will have to submit to a new medical exam before reinstatement. Sometimes, the insurance company may impose new terms and conditions to reinstate a lapsed life insurance policy. For example, the insurance company might increase the premiums compared to when the insured initially bought the policy, since the insured has aged and may be more vulnerable to certain conditions.

Regardless of the reinstatement period, however, the policyholder must pay missed premiums along with any penalties the insurance company may charge for non-payment of premiums.

What Happens if the Insured Dies Without Paying the Missed Premium Within the Grace Period?

If the insured dies on the date the premium is due or during the grace period, the policy is still valid, and the beneficiaries will receive the life insurance payout minus the missed premium. However, if the insured dies after the grace period ends and before reinstating the lapsed policy, the insurer will deny the life insurance claim due to policy lapse. 

The policy can be reinstated only when the insured is alive. Beneficiaries cannot ask for reinstatement after the insured’s death to recover the life insurance death benefit.

What Beneficiaries Can Do if Their Claim Was Denied Due to Policy Lapse

Policy lapse is one of the main reasons life insurance companies deny claims. While in many cases policies are lapsed for a legitimate reason, there are circumstances where the insurance company will lapse a policy it should not terminate. It is not uncommon for insurers to improperly handle lapsed policies. Insurance companies must follow laws of the state where the policy was issued and where the policyholder lives while considering a policy lapse. If they fail to adhere to the lapse laws the denial based on a policy lapse may be overturned and the insurance company may be liable for the death claim.

If your claim is denied due to a policy lapse, you may still have a chance to get the claim paid. Read our page on denied claims due to policy lapse to learn more about what obligations insurance companies have when it comes to terminating policies due to lapse.

Many people are not aware of all of their rights as life insurance beneficiaries or of the intricacies of the laws surrounding the grace period. If you receive a denial letter citing premium non-payment as the main reason for refusing coverage, contact a life insurance lawyer for a consultation. A life insurance lapse lawyer will review your denied claim and assess whether there is a chance to recover the death benefit.

If you are the beneficiary of a lapsed life insurance policy and your claim has been denied, call our life insurance lawyers for a free consultation. Call us at (888) 510-2212 to consult with one of our life insurance attorneys.

by Tatiana Kadetskaya

by Tatiana Kadetskaya

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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