What Is a Life Insurance Grace Period?

Life Insurance Grace Period DefinitionLife Insurance Grace Period Definition

Key Takeaways

  • A life insurance grace period provides a safety net for policyholders who miss payments.
  • If you die during your plan's grace period, your beneficiaries will still receive a payout, however proceeds are typically reduced by the amount of premium due, plus interest.
  • If you let your coverage lapse, it could be challenging to reinstate your plan.

If you miss a premium payment on your life insurance policy, you may worry about what happens next. Will you lose your coverage right away? In most cases, a life insurance grace period helps protect you from a policy lapse. Read on to learn more.

How Do Life Insurance Grace Periods Work?

A grace period for life insurance is a window of time after a missed premium payment. During this period, your policy still provides coverage, even though you missed the most recent payment. This helps a policyholder avoid a "lapse" in their coverage. A typical grace period is about 30 days, but some policies may offer shorter or longer windows.

It's important to avoid lapses in life insurance coverage to maintain uninterrupted protection. Should something happen to you after your coverage has lapsed, your insurance won't provide a payout to your beneficiaries. The grace period gives you a chance to continue that coverage and maintain the protection it provides you and your loved ones.

Example of a Life Insurance Policy Grace Period

Here's a hypothetical example of a life insurance grace period in action.

Say Kayla's life insurance premium was due September 7, but she missed her payment. She realized her mistake October 14, just over a month past her payment due date. As her policy provides a 60-day grace period, she still has coverage if she suddenly passes away, despite missing her last payment. Kayla pays her premium late in October and owes a small amount of interest on the late payment. Her policy is reinstated without a lapse in coverage.

What Is the Purpose of a Life Insurance Grace Period?

A life insurance grace period provides a safety net for policyholders. If you miss a payment and die during your policy's grace period, your insurance plan will still provide a payout to your designated beneficiaries, although proceeds typically are reduced by the amount of premium due plus interest.

Consequences of Missing the Grace Period

If you are behind on your premium payments after your policy's grace period has ended, then you'll lose access to your policy's benefits.

What Happens If I Don't Pay My Life Insurance on Time?

When you first miss a life insurance premium payment, you enter into your policy's grace period. It could last anywhere from 30 to 90 days. During the grace period, your plan still provides coverage. Once the grace period ends, if the missing payment has never been made, your life insurance policy will lapse.

What Happens When Life Insurance Expires?

When your policy lapses or expires, you no longer have coverage. When you pass away, your beneficiaries won't receive a payout.

Can I Pay My Life Insurance Premium Late?

Yes, you can pay your premium late. However, you will likely owe interest on the missed payment.

Can a Lapsed Life Insurance Policy Be Reinstated?

A lapsed policy can be reinstated, but you may face a waiting period, higher premiums or tax implications on certain policies with a cash value. Contact your insurance company for details about how to reinstate your policy.

Reinstating Life Insurance Policy Coverage

If you miss a payment, you still have options to maintain your protection. When the policy has lapsed, it can be reinstated either during the grace period or possibly even after it (within limits).

Within the Grace Period

If you are still within your grace period for life insurance, you can simply pay your premium plus any interest or late fees. By doing so you resume your policy coverage.

Once the Policy Is Lapsed

After your policy has lapsed, you may need to clear additional hurdles to reinstate coverage. This may include providing proof of insurability to your insurance company or possibly undergoing a waiting period.

The Grace Period Safety Net

Your life insurance grace period is an important added protection provided by your policy. It can maintain your coverage for a little longer if you forget to make a payment or fall behind on your premium. To avoid a lapse in your life insurance policy, stick to your planned schedule. Make monthly payments on time or consider making a one-time annual payment to ensure year-round coverage.

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