What Is a Life Insurance Policy Lapse? (2024)

FAQs

What Is a Life Insurance Policy Lapse? ›

A life insurance lapse occurs when you stop paying your policy's premium and the contractual grace period has expired. If you let your life insurance lapse, coverage will end. Depending on your policy, you might be able to reinstate a lapsed policy by meeting certain requirements.

Life insurance policies often have a grace period after a missed payment where the policy is still in force or at least offers some limited benefit. But once grace periods have passed and possible cash value is used up, a lapsed policy will terminate and the life insurance benefits will be gone.

Insurance Lapse Meaning

In such cases, the policy lapses and all benefits and coverages offered are terminated if the due amount is not paid by the end of the grace period. Usually, there is no provision for a lapsed policy refund for insurance policies.

In this case, you may have the option to “cash out” your life insurance by withdrawing the policy's cash value (i.e. its accumulated savings) when your death benefit coverage lapses.

Typically, insurers allow parties to reinstate a lapsed policy within three to five years after the lapse. The process will be more labor-intensive than simply paying during the grace period, however.

A lapsed policy occurs both in case of missed premium payment and if cash surrender value is exhausted in case of a permanent life insurance policy. The policyholder and their family will no longer be entitled to receive life coverage or insurance policy benefits in case of a lapsed policy.

Policy lapse is a situation where you can no longer avail the benefits and cover provided under a policy. Once your policy lapses, you cannot use any feature of the policy and will lose the right to make a claim against it.

Ans: Yes, you can revive your lapsed life insurance policy within 3 to 5 years of the revival period. The applicable revival period may be different for different plans. Thus, you should check with your insurer about how and when you can revive your lapsed life insurance policy.

If the policy has a surrender value, the policyholder may be able to receive some money back by surrendering the policy to the insurance company. The surrender value may be paid out to the policyholder after deducting any outstanding premiums, penalties, or charges.

Yes, it is possible to reinstate a lapsed insurance policy. Depending on the circ*mstances, you may need to provide proof of identity and relationship to the deceased insured in order for them to consider reinstating the policy.

What is the difference between lapse and surrender? ›

Life Insurance Lapse vs.

A life insurance lapse occurs when you unintentionally fail to pay premiums, leading to an automatic termination of the policy. On the other hand, a surrender happens when you intentionally end your policy before its term, usually in exchange for the cash value it has accrued.

A typical life settlement is worth around 20% of your policy value, but can range from 10-25%. So for a 100,000 dollar policy, you would be looking at anywhere from 10,000 to 25,000 dollars.

Payout Delays

There are several possible situations that may result in a delay in payment. Beneficiaries may face delays of six to 12 months if the insured dies within the first two years of the issuance of the policy. The reason: the one- to two-year contestability clause.

A life insurance lapse occurs when you stop paying your policy's premium and the contractual grace period has expired. If you let your life insurance lapse, coverage will end.

Insurers typically allow three to five years to reinstate a policy after it lapses, Ardleigh says.

The downsides of reestablishing a lapsed policy are: One often has to pay out all the missed premiums, which can often add up to a hefty sum. One also has to pay out a penalty to the insurance company. The insurance company can renegotiate the terms of the original policy to place the policyholder at a disadvantage.

If your term life policy expires while you're still alive, your insurance company will notify you that your coverage has ended, and you no longer need to pay your premium. If you still need coverage, it may be possible to renew your policy for a set period of time.

If you go past the grace period, you may completely lose coverage without any possibility of reinstatement. Although most companies will reinstate a policy within a five-year window, you will probably be required to answer more health questions or take another medical exam.

Your grace period — the amount of time you have to make a payment after the due date and bring your life insurance policy back to good standing — is usually 30 days, but it depends on your policy and insurance provider.