As we wind down from the holidays, many are so overwhelmed with the special occasion that they fall short of daily responsibilities. As you start to sort through the mounds of papers or digital notices, you are happy the bills have been paid on time. Except for the one envelope you just decided to open. Your life insurance premium notice. You race to the phone to call the insurance company.
Fortunately, it was only 10 days late and you generally have a 31 day grace period. Technically, if something happened, the insurance company has to pay the death benefit during that 30 day period. But at the end of that period, your policy will have lapsed.
State and insurance companies differ with reinstatement provisions. New York law requires that life insurance policies contain a provision granting the policy owner the right to reinstate policy at any time within three years from the date of default, unless the policy has been surrendered for its cash value. The conditions for reinstatement are that you must provide evidence of insurability satisfactory to them, you must pay all overdue premiums plus interest at six percent per year and you must repay or reinstate any policy loan outstanding when the policy lapsed plus interest.
Many companies will send you a letter after so many months from the time of default offering you the options to reinstate without a new medical exam for a specific cost which can be more cost effective in the long run especially if you are experiencing new health concerns. If your premiums are only $15 a month and your policy lapsed six months, you are probably better off paying the back premium dollars and staying with the same policy and company.
Many states and insurers allow you to reinstate during the term of the policy. So if you bought the policy in 2010, it lapsed this year and it was a 10 year term, you have until 2020 to reinstate. But again, the cost of past premiums may be too expensive to continue that policy.
A new policy may be a better option. Insurance companies have questions concerning your credit history but lapsing on premiums from another insurance policy will not hurt your premium rate for a new policy.
Remember, the ability to reinstate a policy is not guaranteed by law, so the availability of this feature may differ between life insurance providers and states.