Why Do People Lapse on Life Insurance Payments? During an unplanned sad moment, life insurance is known as a financial safety net, offering your families and relatives peace of mind and protection. However, policyholders need to ensure that they don’t allow their life insurance payments to lapse if they still require continuous peace. People lapse on life insurance when premium payments are not paid on time. In this article, we will discuss what life insurance policy lapse means, how to prevent it, how it affects future coverage, and what to do when payments lapse.
What is a Lapsed Policy?
A lapsed policy is a life insurance policy that has been concluded due to non-payment of insurance premiums. Policyholders are given grace periods after the payment due date to pay their premiums. If, after this grace period, they fail to pay, the policy will be considered a lapse.
How to Avoid a Life Insurance Policy Lapse
The best way to avoid a lapse in life insurance is to purchase a policy you can afford. Having enough coverage to cover your family financially after your death is important, but it won’t be helpful if you cannot keep up with your premium payments. When searching for life insurance policies, you can lessen your premiums by reducing the amount of coverage and its term and selecting the term life insurance policy instead of a permanent policy.
By comparing different insurance rates with different companies, you can find the best affordable rates. Generally, life insurance companies are required to provide a grace period for late payments, and this grace period is usually between 30 and 31 days beginning from the payment due date. If after the end of this grace period, you still owe, your policy will lapse and you may pay a late fee. However, ensure you read through your policy to see how you can get back on payment if you miss any.
Other Ways to Avoid Lapses in Life Insurance
If you are facing a financial hardship and cannot or may not be able to pay premiums, there are several ways you can avoid a lapse in your policy. Instead of giving up your coverage, the following are a few ways to avoid a lapse in life insurance:
- Apply for Computerized Payments: This method pays premiums automatically from your account. Here you will not have to record monthly payments; all you need to do is ensure your account has enough funds to cover your insurance payments.
- Convert to a Yearly Payment Plan: The yearly payment plan comes with discounts and gives you enough time to save for your payment. However, as long as your budget allows it, you will only have to worry about making one payment each year.
- Attach a Waiver of Premium Rider: This removes you from paying premiums if you are or become disabled. But this can be added only when you purchase the policy, and it may come with additional premiums.
- Reduce Your Coverage Amount: Even if you have purchased a policy, you can reduce your coverage amount. Doing this reduces how much you pay on premiums.
Through these processes, you can avoid lapses in your policy and also have a better means of paying premiums.
How to Resuscitate a Lapse in Life Insurance Payments
If there is a lapse in your life insurance policy, there are ways you can revive it. Irrespective of the insurer and the policy type, the following below steps, a lapse in life insurance can be revived:
- Contact your life insurance company or agent, explaining your status and asking for ways you can revive the policy.
- Evaluate your policy details before making any move. Ensure you check your policy documents to understand the lapse and revival process.
- Regulate whether you need to submit a written request. Some insurance companies may request a written request to revive the lapsed policy. For this reason, it is important to check with your insurer to see if they require that.
- Ask whether a written request is required. You will be required to pay overdue premiums that you owe on your policy to revive it.
- Resume paying your premiums on time.
- After your policy has been revived, you must resume your payments early to make sure your policy doesn’t lapse again.
How Long Am I Given to Revive a Lapse on My Life Insurance Payment?
Depending on the insurance company, how much time you are given to revive your policy varies. Some insurance companies offer 6 months only to revive the lapsed policy, while others allow it for up to 5 years. Moreover, check with your insurer directly for the specific period you have to revive the lapse on your policy.
Can I Purchase a New Policy after a Lapse?
If you cannot or are no longer interested in your lapsed policy, you can purchase a new insurance policy. Insurance companies may ask if you have ever had a lapse on your previous policies and may charge higher premiums due to it.
