A Lapsed Insurance Policy

Your insurance contract lists your grace and reinstatement periods.

Your insurance contract lists your grace and reinstatement periods.

So you're going over your financial documents when you realize, to your horror, that you have forgotten to pay for your insurance. This can be a serious problem, especially for insurance policies that require a health exam, like life or health insurance. Fortunately, there are a number of ways to prevent your policy from lapsing. Your best course of action depends on how long you haven't paid your insurance bill.

Grace Period

Most insurance policies come with some sort of grace period. Insurance companies understand that mistakes happen and give you a chance to pay your premium without any consequences. If you pay your insurance premium in full during your contract's grace period, your coverage will continue as if nothing happened. The length of your contract's grace period depends on your company. Some policies only offer a 24-hour grace period, while others offer grace periods that last up to one month.

Reinstatement

If you do not pay your premium during the grace period, your policy lapses and your coverage ends. In this case, you may be able to recover your policy through a reinstatement. Some insurance policies offer a reinstatement period after the grace period. During this time, you can call up your insurance company and ask to renew your policy. The insurance company may ask you to take another health exam to re-prove that you qualify for coverage. If you pass, you can get your old policy back and avoid having to buy more expensive coverage through a new policy.

Policy Loan

Life insurance policies have an additional feature to protect against policy lapses. If you buy a policy that builds cash value, like whole life insurance, you can use this cash to pay off your missed premiums. Some policies offer an automatic policy loan. If you ever forget a premium payment, you insurance company automatically takes money out of your cash value to pay off your premiums. This is a great way to avoid policy lapses.

Cancellation

Once your grace and reinstatement periods end and you no longer have any extra cash value, your insurance policy becomes officially canceled. At this point, your connection to your insurance company is completely over. To continue your coverage, you need to apply for a brand new policy and go through any necessary health checks. If you lapse a policy, you may have other problems. Insurance companies keep track of lapsed policies and may deny you coverage because of this reason. It is critical that you always make your insurance payments and do not take out coverage that you cannot afford.

 

About the Author

David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.

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