Missed a life insurance payment? How to get it reinstated

Tyler Wade
by Tyler Wade August 17, 2020 / No Comments

When you have a life insurance policy, you need to make your regular payments, either monthly or annually. If you don’t, you might lose your coverage, and all the premium payments you made with it. 

In general, you’ll receive notice either by mail, phone, or email a payment didn’t happen. Your insurance broker or agent may personally reach out to you to ensure the message is getting to you.

But, missing a premium payment may or may not be a problem depending on the type of life insurance you have.

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Life insurance corporation (LIC) premium payment offers

Term life

With term life insurance, each premium matters because you don’t build any savings from which your life insurance company could pull to make payments. If you pay annually by cheque, you’ll receive a bill each year. To make things easier, you may prefer monthly withdrawals from your bank account, although it costs more. If you miss a premium, you’ll be notified.

You, or your provider, can cancel a term life insurance policy at any time, but you’ll no longer have coverage, nor do they return your premiums.

Whole life

If your whole life policy has savings inside, an automatic premium loan may be made. Your coverage continues as long as your policy can support the loans and loan interest. When that’s no longer possible, you’ll be notified.

Because the policy’s savings can build up, you may be entitled to a cash surrender value if you cancel, so yes, you can cash out whole life insurance. If the policy has only been in place for a few years and no savings have built up within it, you may have to pay fees and not get any money back. Read the terms of your LIC cash back policy.

Universal life

Universal life works like a bank account. Each month, premiums and investment returns get deposited, while insurance charges and administration charges are deducted. Suppose you pay more than the minimum premium, and your investments grow. In that case, you have a cushion that allows you to skip premiums without penalty. Once the savings are exhausted, you’ll be notified. Understand what happens if your LIC lapses and if you receive a policy refund. 

Life insurance grace periods

Most life insurance companies offer a grace period. The grace is a specific time after the premium is due, allowing you to make a premium payment without the coverage expiring. The grace period varies by the life insurance company and your chosen policy type, but it may be as little as 24 hours to as long as 30 days.

Due to the pandemic, and the ensuing financial difficulties, many insurers extended their grace periods from 90 days. However, paying after the due date may result in additional fees. If you have missed a payment, call immediately or use an online portal to keep it going. 

If you were to pass away during the grace period, your beneficiary would still likely receive the benefit, less the premiums owed.

After the grace period, your policy could be cancelled for non-payment. You can always apply for new coverage, though it’ll likely cost more because you now have a lapse in coverage on record. You’re also older, and with life insurance, that costs more. Alternatively, you can try for reinstatement.

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Reinstatement of lapsed life insurance policy

If your life insurance lapses, your coverage’s reinstatement is possible after the grace period ends, usually within a few years. You’re required to pay the missing premiums with interest. You might want to compare the costs of buying new coverage because life insurance is more expensive as you age.

Reinstating a lapsed life insurance policy is similar to applying for new coverage. It begins with a reinstatement application, which includes a questionnaire about your health, mainly that your condition hasn’t changed since your original policy’s approval.  Don’t lie. If it has changed and you don’t inform them, they can void your policy due to material misrepresentation. 

They might also ask for recent medical records, new bloodwork, and urine samples, and maybe even a medical exam. Know they can deny you coverage, and not reinstate your policy.

Your premiums may rise if your health has decreased, but not because of your age. For reinstatement, your premium age remains the same from the original policy start date. It’s a benefit to you because rates can go up by 6% every year you’re older.

How to prevent a lapse in your life insurance policy

Here are ways to protect yourself from losing your life insurance:

Plan for surprises

The unexpected happens. If your bank account balance drops below zero while you’re on an extended vacation, will you find out in time to prevent bounced cheques or withdrawal requests? If you change banks, have you notified your insurance company? Set up automatic payments and overdraft with your bank account to avoid any problems.

Keep your contact information up-to-date.

Inform your insurance company and insurance advisor. Otherwise, you may not get their reminders. There’s no harm in reaching out to them every year to see what’s new and clarify questions you may have.

Pay more than the minimum premium.

You can keep afloat in your universal life insurance policy. You’ll also get tax-sheltered growth.

Drop riders

You can reduce your premium by dropping any extras from your policy like child riders. Children don’t need life insurance because you’re paying the bills anyway. A rider is good for funeral expenses but may be unnecessary if you can afford it otherwise.

Consider changing your payment options.

Some plans let you pay premiums over a shorter period like 10 or 20 years and get guaranteed life coverage. You don’t have to worry about payments afterwards. Can you switch to a credit card premium payment? If you can pay annually, you could save about 18% on premiums, and it gives you a year to save up to pay.

The bottom line

Communication is key. Don’t hide away, hoping your provider won’t come after you for missing a payment. The truth is, they make a ton of money from premium lapses, so they’re happy to cancel. 

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