This is a basic article related to explaining what an insurance grace period is. Whether you are new or experienced with insurance terminology this is a good reminder or a good explanation for newer people.
A whole life insurance grace period is a time frame after a premium is due that a policyholder can still make a payment without having the coverage lapse due to nonpayment. The length of time varies based on state, company, and exact policy type, though usually, it’s 30 days for most life insurance policies.
How does a grace period work
Generally speaking a whole life insurance grace period, or any other for that matter helps protect policyholders from losing their coverage immediately. There are regulations managed by states that determine how long they last.
It is legally required for insurance companies to have insurance grace periods in policy contracts. This benefits policyholders because life insurance death benefits are still payable even if someone dies.
While insurance companies would like grace periods to be as short as possible so they don’t have to pay damages on a policy that hasn’t been paid, policyholders want them as long as possible to avoid financial challenges due to unforeseen circumstances.
Something you want to be aware of is that having a late payment history on insurance products can actually make it more difficult to obtain coverage. Many insurance applications ask if you’ve had a policy canceled, and answering yes to that question can flag you as a high-risk client causing higher premiums.
Why do grace periods exist
There are generally two reasons one may not pay their premiums and they are typical, financial hardship and medical situations. The second reason is why life insurance grace periods are protected, so they are available when families need them the most.
What happens if I make a late payment
Knowing your grace period length is a good thing to find out since they can vary slightly by state. A grace period length of 28-30 days is the standard but check with your insurance company to know for certain.
If you fail to make a premium payment during the grace period then you will be sent notice of policy cancellation due to nonpayment. The good news here however is that whole life insurance grace periods can also be sort of extended by the cash value in the policy. If there is insufficient cash value to make a premium payment then it will be canceled.
Sometimes what the insurance company may do instead is use the cash value in the policy to create a fully paid-up term policy for a length of time the cash value can purchase.
How to reinstate a policy after it lapses
When policies lapse they are then canceled for nonpayment. They can usually be reinstated during the first 30 days after the lapse of coverage for nonpayment. If after that period though there is typically a short underwriting period or possibly a new application process entirely.
When or if you decide to reinstate your coverage the insurance company will need to ensure there weren’t any losses in the interim period. Other requirements may be required by the insurance company like a larger payment, paid in full, etc.