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What is a life insurance policy lapse?
Understanding a Life Insurance Policy Lapse - Content - Left Column - Image
As with any insurance policy, it’s important to stay on top of your life insurance payment schedule. But sometimes, unfortunate circumstances happen, and you may miss a payment. This will result in a life insurance policy lapse. 
A policy lapse occurs when an individual stops paying their life insurance premium. This shouldn’t happen without warning, as carriers are obligated to contact policyholders if their coverage is about to be suspended due to lack of payment. A lapse in coverage means your beneficiaries won’t receive any life insurance money in the event of your death, so it’s important to address this issue quickly. In this article, we’ll help you understand what a life insurance lapse is, why it happens and how to prevent it to ensure your loved ones have the protection they need.
Can you reinstate a lapsed life insurance policy?
Most insurers allow policyholders to reinstate their coverage within two years of a policy lapse, but this will vary by carrier. If you have had a recent policy lapse, you’ll need to contact your carrier to find out if you’re able to reinstate it. In additional to contacting your insurer, be prepared to:
  • Pay back any missed premiums, which can include interest and late fees
  • Show the carrier your evidence of insurability to prove that you don’t pose a risk to for them to cover
  • Restart your contestability period, which is the period in which a life insurance company can investigate your policy for fraud after a claim is filed (typically two years)
You also may need to provide evidence that your health hasn’t changed since your policy lapse and that you’re able to account for all missed premiums. Some carriers may require you to undergo the underwriting process again, especially if your coverage has been inactive for six months or longer.
How to Avoid a Life Insurance Policy Lapse
The best way to avoid a life insurance policy lapse is to make sure you pay your premiums on schedule. Some strategies to help you stay consistent with your payments include:
  • Opt for an annual payment schedule: Rather than budgeting for life insurance on a monthly basis, an annual payment schedule can take care of 12 months’ premiums all at once.
  • Set up automatic payment: If you struggle to remember to pay your premium on a monthly basis, you can enroll in automatic payments.
  • Include a waiver of premium rider to your policy: A waiver of premium rider grants you an exemption from paying your life insurance premiums in the event you become disabled. Consider adding this rider to your policy to protect you if you’re unable to pay your premiums due to critical illness or injury. 
Keep in mind that every state’s department of insurance requires carriers to provide policyholders with a grace period to make a missed payment, typically 30 to 31 days past your premium’s due date. However, carriers may still charge a late fee, so it’s important to budget accordingly and allocate funds every month to pay your premiums and avoid a lapse in coverage.
Have questions about a lapse in your life insurance policy? SelectQuote can help.
SelectQuote’s experienced licensed insurance agents can help you understand your life insurance policy payment schedule and grace period to help you avoid a lapse in coverage. Whether you have questions about your current policy or are looking to purchase life insurance for the first time, we can help. With over 35 years of experience helping people navigate decisions about life insurance, we’re well-equipped to guide you through the process. We’ll quickly compare plans from trusted carriers on your behalf to find the right policy for your budget and needs.
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