Is whole life insurance policy lapsed two months ago due to nonpayment she would now like to reinstate?
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I bought a 10-year traditional insurance policy in 2015. I paid the premium for the first five years but was not able to pay for the last two years. Can I start paying the premium now? Has the policy lapsed? What happens if I don’t pay premiums on time in the future? Show
—Name withheld on request Insurance companies provide a grace period of up to 30 days from the policy renewal date to pay the outstanding premium. Beyond this, if the premium is unpaid, the policy is considered to have lapsed. However, lapsed policies can be revived. A policy can be revived by paying the past premiums, and additional charges as levied by the insurer. Often, insurers come up with special schemes or campaigns to revive lapsed policies. In such schemes, they would typically waive any penalties or additional charges. If you do not want to pay premiums in the future, you can also surrender the policy. By now, your policy would have acquired a surrender value. I am 35 years old and have recently bought a term insurance policy. I read an article recently that said banks can lay claim to your assets if there are unpaid loans—be it car, home, or personal loans—despite the term insurance. I would like to know if there is any way to ensure that banks cannot claim any amount received by my nominee in the event of my untimely death? —Name withheld on request Banks or lenders can be made a beneficiary of a term plan, only if you assign the life insurance plan to them. The process of transferring your rights to another person or entity is termed an “assignment". The assignment is common for large loan amounts, where you, as a policyholder, assign your life insurance policy to the bank(s). However, in the absence of an assignment, the bank can claim its right on the proceeds only through the courts by attaching your estate to recover the loan. As for a married woman, the amount can be secured from financial creditors by buying the policy under the Married Women Protection Act. Proceeds arising from such policies would then belong solely to the wife. Abhishek Bondia is principal officer and managing director, SecureNow.in. Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. More Less Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter. If unexpected expenses come up and you can’t pay your life insurance premium, you should know the possible consequences. The effect depends on the type of policy and coverage you have and the policy terms and conditions. Term: If you stop paying premiums, your coverage lapses. Permanent: If you have this type of policy, you will have the following choices:
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Are you going through a financial rough patch and can't afford to pay your life insurance premiums? Not making your payment as agreed could have some serious consequences, depending on the terms and conditions of your policy. Keep reading to learn about the possible effects of missing one or more life insurance premium payments. How Do Life Insurance Payments Work?Depending on your agreement with your life insurance provider, premium payments may be due monthly, quarterly, semi-annually or annually. Due to their frequency and reduced size, monthly or quarterly payments are typically easier to budget for. However, some insurance companies charge additional fees to process these frequent payments, which can cost you more overall. Opting to pay premiums on a semi-annual or annual basis can help you avoid any added costs, but it'll mean making a large and infrequent lump-sum payment. No matter your payment structure, it's important to make sure it's factored into your budget, and to take steps to free up cash for payments if money's tight. If you purchase life insurance through your employer, premium payments will likely be deducted from your paycheck. You may have the option to take the policy with you if you leave your employer, but you would need to work with your insurer to convert your plan to a whole life policy. You'd then begin making payments directly to the insurance company in order for the policy to remain active. Does Your Policy Lapse if You Miss a Payment?Whether your policy will lapse if you miss a payment depends on the type of policy and the terms and conditions set forth by the insurance provider. If you have a term life insurance policy, expect coverage to lapse if you miss a payment. Your policy may not automatically lapse from a missed payment if you have permanent life insurance, though. You can cash out the policy, agree to a reduced death benefit that no longer accumulates cash value or convert to term coverage if you stop paying premiums. If you cash out the policy, the insurance company will disburse the cash savings to you. Use the funds how you see fit, but be mindful that you'll no longer have life insurance coverage. You could also be responsible for paying income taxes if the amount you receive is more than what you paid in premiums. Some providers also offer a non-forfeiture option that allows you to stop paying altogether. You have to agree to a smaller death benefit in exchange, and the policy will no longer build up cash value. Or you may be able to convert to an extended-term policy with a death benefit equal to the value of cash savings already accumulated in the policy. But there are instances where cash-out or non-forfeiture options are unavailable on permanent life insurance policies. Consult with your insurance provider to explore your options. Also, know that many insurance companies offer a 30-day grace period before
they cancel your policy. How to Avoid a Life Insurance Policy LapseStay on top of your premium payments by enrolling in autopay through your insurance provider or using your financial institution's bill payment service. If these methods don't work for you, schedule your premium payments at the beginning of the month several days before the due date to ensure timely processing. To better prepare for large annual or semi-annual payments, you might consider setting up an automatic transfer to another savings account to be prepared when the time comes. That way, you can incorporate the transfers into your monthly budget. If you're already behind on payments, reach out to your provider and ask about payment options that can help you get back on track. They may offer to modify the due date or break up the past-due premium payments into smaller chunks until you bring the account current without canceling your policy. What to Do if Your Policy LapsesNon-payment can result in your policy being canceled by your insurance; if this happens, reach out to the insurance provider promptly and ask what you can do to have it reinstated. This process could be as simple as making premium payments to bring the policy current if not much time has passed since the policy lapsed. Even if you've missed several payments, your term or permanent life insurance policy may be eligible for
reinstatement. Some insurance providers give you up to five years to get current on your premium payments plus any applicable interest, but a medical examination may be required before your policy can become active again. The Bottom LineIt's not the end of the world if you miss a life insurance premium payment. If this happens to you, work with your provider to create a plan to get current. And if your policy lapses, start taking the necessary steps to get your coverage reinstated right away. Can you reinstate a whole life policy?During the grace period, you can reinstate your life insurance policy simply by paying the outstanding premium and any associated late fees. Grace periods typically last around 30 days, depending on your policy. Under certain circumstances, some insurers may extend it up to 60 or 90 days.
What happens when a whole life policy lapses?Once a policy has lapsed, you no longer have coverage. That means the insurer does not have to pay a death benefit to your beneficiaries if you die. But you may be able to reinstate a lapsed policy, depending on how long ago it lapsed.
When can a lapsed life insurance policy be reinstated?A life insurance policy may typically be reinstated within 30 days of a lapse without additional paperwork, underwriting, or attestations of health. Insureds often pay a reinstatement premium, which is larger than the original premium.
Can a lapsed term insurance policy be reinstated?Insurance companies provide a grace period of up to 30 days from the policy renewal date to pay the outstanding premium. Beyond this, if the premium is unpaid, the policy is considered to have lapsed. However, lapsed policies can be revived.
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