Let’s talk about the common grace period for payment of your life insurance premium. It’s an important safety net but you want to avoid anything that jeopardizes your policies’ protection so try to avoid using the grace period all together. Let’s look a little closer at the payment grace period.
The standard grace period for payment with most life insurance policies is 30 days. but you want to double-check with your life insurance agent or carrier as to the exact details of your policy. This means that if you payment is due March 1st, you have up to 30 days following this date to have the payment received by the carrier. This grace period typically does not vary depending on the period of payment (monthly, quarterly, annually, etc) or by the type of payment method (credit card, billing, auto-deduction).
This grace period can really help with auto-deduction or credit card payments where the old information (credit card # or expiration date for example) is no longer up to date or valid. This can especially occur when you pay for longer periods of time such as annually or bi-annually. People tend to forget about their life insurance payment if it’s processed once a year and they have the card stolen or misplaced in-between. In fact, this is a common cause of lapsing policies. We feel that the automatic renewal options involving credit cards and auto-deductions are the safest way to go. The carriers have found that a policy is less likely to lapse when set up with these payment methods. Bills get lost and it’s easier to procrastinate when paying with a physical bill. Combining the basic automatic nature of paying via credit card or auto-deduction and the grace period safety net in case the payment information has changed in the interim provides a solid protection against lapsing life insurance.
What happens if you miss your grace period for an existing insurance policy? At that point, the policy lapses coverage which means you no longer have the life protection of the policy. Your part of the life insurance contract is that you will continue to pay the premium as required to keep the policy in effect. If you miss payment past any grace period allowed by the carrier, the contract essentially cancels going forward. There may be options to re-instate a life insurance policy if back premiums are paid but you do not want to rely on this. Many life insurance policies cancel or lapse within the first 18 months.
Lapsing a life insurance policy is generally bad news. First of all, unless you’ve recently come into millions of dollars, the basic need for life insurance protection probably hasn’t changed much. If you missed the grace period, lapsed the policy, and decide to re-apply for new life insurance, the rates will likely be higher since you are now older. The biggest driver of life insurance rates is age so any increase in age means that you will generally pay more over the life of the policy. The grace period for life insurance payments is a protection against this risk but it’s best to rely on it only in a true emergency in case automatic renewal payments have an issue. If a payment does not go through on an automatic renewal, the carrier will generally notify you of the issue or general a paper bill.