In order for a life insurance claim to be paid, several requirements must be met: there must be valid coverage at the time of the insured’s death, the beneficiary must produce a certified copy of the death certificate and file a notice of claim, and the insurance company must make sure the claim is payable (e.g., exclusions do not apply).
The most important requirement of all, however, is the existence of valid coverage at the time of the insured’s death, since a claim can only be paid if the coverage was in effect. An active policy at the time of death means that the policyowner paid the policy premiums on time and did not allow the policy to lapse. If the policyowner missed premiums and the insured died before reinstating the policy, even if a claim is filed, the insurance company will likely use this as a reason to deny paying benefits. There are many factors that affect the validity of a policy lapse. If you are having problems with a claim denial due to lapse in coverage, you should seek legal counsel since you may still be entitled to receive the benefit.
In this article, we are going to explain exactly what happens when the policyowner fails to pay life insurance premiums and what you should do if you are the beneficiary of a lapsed policy.
What Happens When Life Insurance Lapses?
A lapse happens when one or more premium payments on a life insurance policy are not received on the due date or during the grace period. When a life insurance policy lapses, the policy is no longer active and the insurer is no longer legally obligated to pay the death benefits to the insured’s beneficiaries.
What Is the Grace Period For a Life Insurance Policy?
A life insurance grace period is a time period of usually 31 or 60 days (it varies in different states) which begins on the date a premium is due and is not paid. Generally, the policy stays active during the grace period. If the insured dies during the grace period, the claim will be paid even if no premium payment was made during it. If, however, the grace period ends and no payment is made, the insurer may treat the policy as lapsed and will deny any claims where deaths occur after the end of the grace period.
There are several exceptions to the general rule of policy lapse and when the grace period starts. For example, some life insurance contracts have a provision which states that the insurer will pay the missed premium using the policy’s built-up cash value. In such cases, the grace period will not start running on the date the premium was not paid by the policyowner.
In other cases, there may be a waiver of premium in place that keeps a policy in force in the event of the insured’s total disability and does not require premium payments. When a waiver of premium is in effect, the life insurance company will waive premium payments for as long as the disability lasts. However, even then there are exceptions and, if the waiver is not handled correctly, your claim may be denied. If this is your case, read our article about how to recover benefits denied due to no overage under a waiver of premium.
Life Insurance Grace Periods During the COVID-19 Pandemic
Since the beginning of the COVID-19 pandemic, several states have promulgated emergency regulations to provide relief to life insurance policyowners experiencing financial hardship by extending grace periods. Such regulations gave life insurance policyowners a right to pay missed premiums late under certain conditions. If you are the beneficiary of a policy that lapsed during the COVID-19 pandemic, you may still receive your benefits. Call our life insurance attorneys specializing in policy lapses for a free consultation.
You can read more about life insurance and COVID-19 in our article where we discuss if life insurance covers coronavirus.
Life Insurance Law Regarding Payment Lapses: What Can Cause Wrongfully Denied Claims
Laws in many states provide wide protections to beneficiaries and policyowners by placing restrictions on insurance companies in regard to when a policy may lapse. Both life insurance companies and policyowners have certain responsibilities when it comes to keeping policies in effect.
A Policyowner’s Responsibilities
Policyowners are responsible for making sure their policy does not lapse by paying premiums on time. If premium payments are automatically drawn from a bank account, it is the policyowner’s responsibility to make sure the account always has sufficient funds to cover premiums. If a premium is not fixed and may increase, it is the responsibility of the policyowner to keep track of increased premiums payments to make sure a correct amount of premiums is submitted to the insurance company. Finally, life insurance companies tend to communicate to policyowners via regular mail. Important policy documents such as premium-due notices, grace period letters, premium increase letters and lapse notices usually arrive in the mail to the address last known to the insurance company. Thus, it is the policyowner’s duty to timely inform the insurer of address change, bank account closure, etc. If the policyowner is not able to receive mail, he/she must designate another person to receive and read important life insurance notices.
A Life Insurance Company’s Obligations
Policyowners are not the only ones who have duties under a life insurance contract and laws. Life insurance companies also have certain obligations.
First, a life insurance company must send the policyowner a premium-due notice to the correct address. Keeping an updated record of the policyowner’s correct address may seem easy. Still, hundreds of life insurance claims get denied routinely, because an insurance company sent a premium-due notice to an insured’s old address or to the wrong address.
Second, a life insurance company has a duty to send a premium-due notice to the policyowner within a certain time period. If the policyowner does not receive a premium due notice during that specific time frame, he/she may not even find out that a premium is due before the lapse. This is especially true for situations where premiums are paid annually or where a premium is automatically withdrawn from the insured’s bank account.
Another duty an insurance company has is providing the policyowner with a lapse notice that complies with state laws. These statutes vary from state to state, but they are all designed to protect policyowners and beneficiaries from wrongfully lapsed life insurance policies. They usually require an insurer to send specific, clear lapse notices that tell the policyowner exactly when the premium is due, when the grace period begins and when the policy will lapse if a missed premium is unpaid.
Our life insurance lawyers have handled many denied claims based on life insurance policy lapse. When faced with a lapsed policy denial, call our attorneys. We have the experience you need. Read how we have successfully helped one of our clients recover the benefits when her claim was denied due to failure to pay premiums after the death of her husband.
Not all life insurance lapses are valid and a life insurance claim denied because the policy had lapsed may still be recovered. A life insurance lawyer experienced in collecting denied life insurance claims based on lapse will help you determine whether you have a valid claim. Call 888-510-2212 for a free case evaluation.
Employer-Provided Life Insurance and Policy Lapses
An employer-provided group life insurance policy may also lapse due to non-payment of premiums. This usually happens when an employee is terminated or retires. In group life insurance cases governed by ERISA, employers have a duty to timely provide correct information regarding life insurance benefit changes to their employees. If there is an option to convert or port group coverage, employers may have a duty to notify the employee that their policy may terminate and they need to port or convert the group policy to an individual policy. Unless the insured fills out a conversion/portability application and submits it to the insurance company within a designated deadline, the policy will lapse.
If you or a loved one have issues with a denied ERISA claim, our lawyers can help. We have successfully handled many cases where life insurance companies denied coverage due to lapsed policies. Call us at 888-510-2212 for a free case evaluation.
Life Insurance Lapse Law in California
Some state laws place even more obligations on insurance companies when it comes to life insurance policy lapse. For example, California requires insurance companies to send policyowners annual notices advising them of their rights to designate a third-party to receive premium-due notices. Insurance companies selling policies in California are then obligated to send lapse notices not only to the policyowner but also to the designated person. If the insurance company failed to comply with this state law and lapsed your policy, you may recover the full amount of your benefit.
If you live in California and have issues with a denied claim due to non-payment of premiums, read our blog post about life insurance lapse in California to learn what you can do to win your case.
What to Do If You Are the Beneficiary of a Lapsed Life Insurance?
When a life insurance claim is not paid because the insurance company claims the policy has lapsed, you need to speak to a life insurance lawyer to understand your rights as a beneficiary. The insurer may have made a mistake in denying your claim or there may be new life insurance laws in place which provide more protections to you as the beneficiary.
If your life insurance claim has been denied, call our life insurance lawyers now for a free consultation. Call 888-510-2212.
We work on a contingent fee basis – you pay attorney fees only if we win your case. We take pride in offering competitive contingent fee structures and will work with you to ensure you are comfortable with the fee.