What is Life Insurance Grace Period?

Grace Period in Your Life Insurance Policy

 

All life insurance companies provide for a Grace Period for the payment of regular premiums toward your insurance policy. However, what happens in case certain events occur during the grace period of your policy?

 

What is a Life Insurance Policy?

What Happens in Case of Death of the Insured Person During the Grace Period?

The policy stays In Force during the grace period. 

If the insured dies on the premium due date, or during the grace period, the premium due for the Policy Month in which the insured dies will be subtracted from the Death Benefit. 

Apart from this, there is no other impact on the death benefit of the insurance policy, as long as the death occurs during the grace period.

 

What Happens If You Do Not Pay Premiums Due by the End of the Grace Period?

If you do not pay any premiums by the end of the grace period, the Policy Will Lapse as of the premium due date.  

You may put the policy back In Force by meeting the requirements of the Reinstatement Provision. 

In such a scenario, the beneficiary is not applicable for any death benefit. For re-instating the policy, it is advisable to read the policy documents and comply with the stated requirements.

 

What If You are Moving from One Insurance Company to Another?

Never cancel a life insurance policy that you are replacing until the new policy is In Force. 

If you cancel a policy THERE IS NO GRACE PERIOD. 

You can let it go into the grace period if your new policy is close to going In Force, but you and your agent should be very careful not to let your life insurance coverage lapse until the new policy is In Force. That way, you are never without coverage.

 

Summary of Grace Periods

The grace period is a very generous provision from life insurance companies. 

Make sure you understand the terms of the grace period for your policy, and always keep track of when the premium reminder should be coming. 

Do not hesitate to call the insurance company or your insurance agent if you think you should have received a premium reminder, but it never arrived.

 

Grace Period Explained

The grace period is the time after a missed insurance premium is due, where a life insurance policy will not lapse even though the payment is past due.  It means, you still have your life insurance coverage In Force.

The grace period is a very useful feature, whose inclusion in every life insurance policy is mandated by every single state in the United States. 

The Minimum Grace Period varies from 28-31 days depending on individual state laws, but some insurance companies may give longer grace periods.  

The grace period officially begins the day the missed premium payment is due, and ends at the close of business after the prescribed number of days have passed. 

In whole life, universal life, or variable universal life insurance policies, the grace period would only be effective if there was no remaining cash value in the policy, and the premium payment was due.  

If a premium payment is missed while cash value remains, it is unlikely that a policy will go into "Grace Period Status".

Purpose of a Grace Period for Life Insurance

Saving Death Benefit Payments to Beneficiaries

The grace period serves two extremely useful purposes for life insurance owners and beneficiaries.  

The first and arguably most important benefit of the grace period is that if a premium payment is slightly late, the grace period prevents a life insurance company from denying an otherwise valid death claim.  

This is very important to the beneficiaries of the policy, who may be relying on the proceeds of the death benefit to provide for them after an insured person passes away.

This is all the more important because it is easy for an insured/owner to miss a payment when he or she is near death. 

The owner may be in the hospital, either because they are sick or they are visiting the insured, and the family may overlook bills for a brief time.  

It is also easy to miss a bill during life changessuch as moving and changing addresses, or spending time denied a death claim, there would be a lot of beneficiaries who were counting on the money left in the lurch for what could be a very valid reason for being late.

Even if the beneficiaries were eventually able to recover their payment through the court systems, this is a long and costly process, and it would make people much less likely to buy life insurance in the first place.  

The grace period helps preemptively resolve disputes of this nature, facilitates fairness in the life insurance industry, and promotes a standardized healthy and ethical business environment.

Prevents Lapses That Could Create a Need for Underwriting

If a policy lapses, an insurance company is not obligated to reinstate the policy without underwriting.  

Most insurers will provide a period of time after lapse that an owner can still Submit a Reinstatement Payment of premiums owed (plus any penalty), and bring the policy back into good standing without the need for the insured to pass through the underwriting process again.  After this period of time, underwriting may be required, including a physical examination.

The real significance to this is that if an insured person has a material change in health, the insurance company can deny reinstatement.  

If a policy did not have a grace period, insurance companies would be able to pick and choose the most favorable clients each time a payment was slightly late, and this would be often.  

People who most need life insurance are those who have the highest risk of mortality.  

If a person has a heart attack, cancer, HIV, stroke, or other serious illness, it may be impossible to qualify to purchase life insurance.

The grace period helps prevent extreme culling of clients to suit an insurance companies desired risk profile.  At best, it also prevents the inconvenience of the life insurance policy lapsing each time a premium payment is late.

Grace Period Payments May Be Larger

Policy owners need to beware that a grace period payment may be larger than the premium payment that was due.  

The calculation for grace period payments can be complicated and vary between insurance products and insurance companies.  Always check with your life insurer before a policy goes into the grace period to understand the repercussions and additional costs.

There is a good reason that every state in the USA has a law requiring a grace period, and the reason is that the grace period is necessary and useful for the smooth operation of the life insurance industry from the perspective of the policy owners, insureds, beneficiaries, and insurance carriers.

Grace Periods on Life Insurance

Grace periods for late payments last anywhere from 30 up to 60 days, and your life insurance remains in force during the grace period.

Companies want you to keep your coverage, which is why Life insurers will work with you to keep your coverage In Force.

But once a life insurance policy lapses, it may be difficult to reinstate your coverage. 

Your insurer may require you to show additional evidence of insurability, such as undergoing a physical examination. If you have developed a new medical condition, your policy may not be reinstated, and you may go without life insurance due to having failed to pay your premiums on time or within the grace period.

Most life insurance policies — including term life insurance -- can be reinstated within five years of lapsing if overdue premiums are paid and loans against cash value are satisfied. 

If you have a level premium term life policy, you can still pay your premiums due based on your original issue age.

To avoid a policy cancellation, talk with your agent. 

There are options for catching up with premium payments owed for permanent life insurance, such as making partial payments, suspending your insurance coverage for a period of time, or using the policy’s cash value to cover premium payments due. 

Check with your insurance company for term life premium payment options.

Don't rely on grace periods to keep your life insurance policies.

 

What is a Life Insurance Grace Period?

The life insurance grace period exists to provide a window of security should you miss your payments of premiums owed to the insurer, no matter what type of life insuranceyou have.

The grace period ensures your policy won’t be canceled immediately.

This isn’t an ideal situation for the insurer, as it risks them having to pay out despite not having received premium payments owed on the policy.

The grace period provides you with security in the event of a financial emergency, forgotten check, or anything else which may get in the way of your payments you owe the life insurance company.

Luckily, the grace period provides a buffer of time, usually around 30 days, in which you can send the missed payments owed to the carrier.

Your coverage continues for as long as you’re in the grace period. 

Should you pass away while the grace period is in effect, the policy will issue the full payout to beneficiaries of your policy, minus the premiums you owe.

Grace periods help to ensure your beneficiaries receive your life insurance payout even if you’re incapable of paying the premium bill. 

The grace period also helps avoid the need for underwriting.

How Do I Find Out My Life Insurance Policy Grace Period? 

Your grace period should be indicated on your policy documents. If you’re unable to find the information, contact your insurance company and they’ll be able to advise you. Luckily, a grace period is a legal requirement in every single state in the US, so you can be confident that your insurance will come with one. Your grace period may be shorter if you pay monthly and longer for annual payments.

Whatever its length, your grace period will start on the day the missed payment should have been made. The period will end at the close of business following the set number of days.

What Happens if I Miss the Grace Period? 

Although you won’t be immediately cut off from your policy if you should miss a payment, the life insurance grace period is your last chance. If you miss the grace period, your policy will lapse, leaving you without life insurance coverage.

After this point, you’ll no longer be covered by the policy.

What happens following a lapse can vary between insurers. In some cases, you’ll be able to reactivate your policy once the payment is made. In the worst case, you may be forced to reapply for cover.

You might even find yourself facing higher premiums as a result.

If you attempt to resume your policy with your insurer, you’ll need to pay the missing balance. If you die outside the grace period with a lapsed policy, your beneficiaries will receive absolutely nothing.

Any money you’ve spent on the policy will essentially be wasted.

Generally, you’ll only need to reapply for cover if there’s been a change in your medical circumstances. In this case, the insurance company is likely to ask for a new medical exam and may increase the premium as a result of the evaluation.

Under no circumstances should you simply let the grace period expire as a way of canceling your policy. This will break the agreement with the insurer, potentially making it more difficult to find insurance elsewhere. Such action could also affect your credit rating.

If you were to pick this policy back up in a few months, you’d then owe months of back-dated premium payments.

You may also find your insurance company won’t reinstate your insurance without it being underwritten. By missing the grace period, you’ve added another risk factorfor your insurance company to consider when deciding to reinstate your policy.

 

Staying on Top of Your Premium Payments

By far the easiest way to avoid any discussion of grace periods is to stay on top of payments.

It may sound easier said than done, but there are a number of changes you can make to your lifestyle and finances to ensure you pay your premium on time.

Create Personal Reminders

Use your personal organizer of choice (phone, email, diary, etc.) and create reminders prior to the payment date.

Separate Account with Automatic Payment

Use a separate account to your main balance for these kinds of payments, and set the payment to go out automatically. Now all you need to do is be sure the money is present in your account.

Change Your Payment Method

Many policies give multiple options for the payment cycle, such as monthly, quarterly, or annually. Depending on your circumstances, you may find one payment method suits you above others, in which case you should switch to it.

Always Keep Your Details Up To Date

If you change address, legal name, bank details, or anything else you believe may affect the account, then you should do your best to notify your insurer of the change.

Communicate with Agent

Ultimately, you should remember that it’s in everyone’s best interests if you communicate with your life insurer if you should miss any premium payments.

Your insurance agency will want to keep you as a client, and also recover any money you owe them, so they’ll be prepared to work with you to settle your account. This could mean moving to a different payment plan.

 

Death During Grace Period for Life Insurance – Facts to Know

A 50-year old man is diagnosed with liver cancer and has to be admitted to the hospital. He had maintained a term policy for the last 20 years, with regular quarterly parents. His family relocates to a new address for his treatment and his unfortunate death occurs within a couple weeks of the relocation. When his son makes an insurance claim, he finds that he has missed a notification from the bank, and the last premium for his father’sterm insurance has gone unpaid.

In such a situation, the policy enters a grace period, which is like an interval between premium due date and lapse of insurance policy coverage. If there was no grace period, then a person unable to pay his premium due to sudden emergencies would find his coverage unfairly cancelled. It is for this reason that all insurance providers allow a grace period lasting from 15 to 30 days, usually.

Important Things to Know:

The Sum Insured Remains Unaffected Even If the Premium is Not Paid within the Due Date

Grace period is essentially an extension of your regular premium payment mode (monthly, quarterly, biannual or annual). Therefore, the policyholder is not penalized for premiums paid during the grace period.

Some Deductions of Premium Owed May Be Made

If the policy-holder dies within the grace period before the premium is paid, then the insurance provider will deduct the value of the premium from your death benefit. Keep in mind that this is not an additional fee paid. This is the amount which would have been paid by the policy-holder, eventually, to keep his plan active.

Grace Period May Vary Based on Payment Mode and Carrier

It is usually 30 days for annual premium payment mode, but can be less for more frequent payment modes, such as 15 days for monthly premium. The provider will inform you before your due date, and also afterwards to inform you have now entered your grace period. Alternatively, you may reach out to your insurance agent for payment details.

You Can Make Your Claim During Grace Period, As You Would During the Policy Term

All relevant documents and forms should be used to make death claim during a grace period, as per regular norms. As long as death occurs during grace period which begins the day after the due date, you are eligible for compensation.

Active Cancellations Do Not Come with Grace Periods

If you are changing your insurance provider, it is better not to cancel your previous insurance until the new plan is in place. If you cancel a plan, no compensation will be provided even if an unfortunate event takes place just one day later. So, it is better to let the policy go into a grace period when your new plan is just about to come into effect.

The policy-holder from our example will be able to ensure death benefit, even if he passes away before paying the last premium.

However, grace period is a limited time and it may not be enough for the policy-holder to make his payment, even if he is alive and well. To ensure consistent coverage it is better to switch to a more manageable mode of payment (monthly or quarterly) in case the policy holder is unable to pay annual premium due to financial constraints. The grace period is a facility provided by banks that ensures uninterrupted coverage in such cases. 

Life insurance companies understand that people run into financial trouble from time to time. They offer grace periods so that you won’t lose your coverage if you find yourself in a bind.

What Is An Insurance Grace Period? 

A grace period is a set amount of time that your insurer will keep your policy active if you haven’t paid your premium. The grace period for your policy would depend on the company that holds your policy. Grace periods can also vary from state to state.

The terms of your grace period are outlined in your policy contract. Most insurers offer a grace period of 30 days from the date that your payment was due.

 

Do I Need to Call To Activate My Policy Grace Period? 

Most insurers will activate the grace period as soon as your payment is late. 

You can call and let your insurer know that you don’t have the money to pay the cost of the premium and let them know when to expect the money. The representative that you speak to, will put a note in your account.

However, if you forget to make the call, don’t worry. The grace period will start automatically on the date that your payment was late.

What Happens If I Die During the Grace Period of My Policy?

If you missed a premium payment and you are taking advantage of the grace period, and you die, you will be covered.

As long as your grace period has not lapsed on the day of your death, your insurer will pay out the full amount listed in your policy minus the money that you owe for your last premium.

How Many Times Can I Take Advantage of the Grace Period?

Most insurance companies do not have a limit on the number of times that you can take advantage of the grace period. The day that your payment becomes late, your grace period will automatically begin.

What Happens If I Can’t Make My Payments Within the Grace Period? 

If you are unable to come up with the money for your premium within 30 days, you can have your policy reinstated. Many insurers allow you to reinstate your policy up to five years from the end of your grace period.

Since the terms of the policy can differ from company to company, it is a good idea to check your original policy to find out how much time you have to reinstate the policy. You can also call and speak to a representative.

It is important to understand that there is more to reinstating the policy than you might think.

The first thing that your insurer would require is that you pay all of the premiums that were due from the end of your grace period until the day you file for reinstatement. If you allowed your policy to lapse weeks or years, this could end up costing you a lot of money.

When your insurer has been received, and your account is up to date, there are a few other things that most insurers will require.

Reinstatement Application: Before your lapsed policy can be reactivated, you will need to fill out a reinstatement application. This will be similar to the application that you filled out when your first bought your policy.

 

Health Statement: If you are reinstating your policy within 30 days of your grace period ending, it is likely that you won’t need to worry about this statement.

Also, there would be no underwriting necessary if you are going to have your policy reinstated. If it has been more than 30 days since your grace period ended, most insurers would need a health statement.

Most companies will want to know if your health has changed since you first applied. If your health has declined, it is essential that you make your premium payment within the grace period so that your policy will remain the same.

Also, if your grace period has ended and your health has declined, don’t try to lie on your statement. If your insurer finds out during the claims process that you lied on your health statement, your insurer can dispute all or part of the benefits owed to your beneficiaries when you die.

Medical Exam: If it has been a while since your grace period ended, your insurer will likely require that you take another medical exam if your policy is going to be reinstated.

Most insurers require this if it has been six months since the end of your grace period ended. Since all life insurance companies are different, you should contact your insurer to find out what their policy is.

Also, if the answers on your health statement suggest that there have been changes in your health, you could be required to take a new medical exam at any time.

What If I Can't Afford My Premiums After Frequently Using the Grace Period?

If you have had to use your grace period often because you are struggling to meet your premiums, you might want to think about finding a cheaper company or going with a lower plan with lower premiums.

This would prevent you from using the grace period and potentially allowing it to lapse.

If you are going to cancel your policy completely and you have no intention of reinstating it, there are a few ways that you can terminate it.

Don’t Make Any Payments: If you stop paying your premiums and you are past the grace period, your policy will lapse and be canceled. If you pay your premiums monthly, this could be an option for you.

However, if you made your payments semi-annually or annually, you will be losing money that belongs to you. In cases like this, there is another option.

Formally Cancel Your Policy: If you know that your premiums are too much for you to afford, you can call your insurer to formally cancel your policy. You can give them the specific date that you want the policy to be canceled.

If you are in the middle of your grace period, your insurer will cancel the policy on the day that the grace period lapses. If you are only a few months into an annual payment, your insurer will refund you a prorated share of your premium.

While you have your insurer on the phone, you can find out if there are any cheaper policies available that will fit in with your budget. Having less coverage is better than having no coverage at all.

How Can I Avoid the Grace Period?

If it is not your finances that have your taking advantage of the grace period often but your own forgetfulness, there is a way that you can keep this from happening. Many people lead very busy lives.

Because of this, sending out a payment for your life insurance premiums can slip your mind. Most insurance companies today have an automatic payment option. They will automatically take the money from your bank account on the day that the payment is due. This means you will never forget to make a payment again.

If you are thinking about using the automatic payment option, just be sure that you have enough money in your bank account to cover the cost of the premium. If you don’t, you will find yourself using the grace period once again.

You should start thinking about life insurance when you are young. If something happens and you die suddenly, your family will be taken care of.

If you cannot afford an expensive life insurance policy, you should consider one that will cover your burial expenses. The average burial expenses can cost between $7,000 and $10,000.

If you havelife insurance for your burial expenses, your family wouldn’t be responsible for paying the bill. If you have a policy and you forget to make the payment or if you don’t have the money to cover the cost of the premium, don’t worry. You can take advantage of the grace period which will keep your policy in good standing as long as the payment is made before the end of the grace period.

 

Conclusion 

Life insurance is something that everyone should have, regardless of your age or your health.

Many young people believe that they don’t need life insurance until they are in their sixties or seventies.

This could end up being a very big mistake.

Young people can get sick or get involved in an accident that can take their lives. If they don’t have life insurance, their family wouldn’t be protected. There are affordable life insurance policies available that will fit just about any budget.

Make sure you select the amount of premium that you can easily afford to pay every month.

Life Insurance Quotes

Top Pick – JRC Insurance Group

JRC Insurance Group helps you shop, compare and save on life insurance. Regardless of your age or health background, we'll shop our 40+ insurance companies and find you affordable life insurance you need to protect your family and fit your budget. Compare the best life insurance rates for savings up to 73%. Get Your FREE Quote.

 

Additional Resources:

Life Insurance Terms – Glossary of important terms for life insurance.

Term Life Insurance vs. Permanent Life Insurance – Compare the benefits and drawbacks of the two basic types of life insurance plans.

Life Insurance for Seniors Age 50 to 85

What is Life Insurance Grace Period?

Globe Life Insurance