Insurers understand that policyholders can forget to make premium payments. That’s why they offer grace periods during which you can catch up on that premium payment without a penalty or lapse in coverage.
However, there is always the chance that a policyholder can pass away during this grace period. This can leave questions about whether the policyholder’s loved ones will get access to the death benefit.
This article will explain how grace periods work on a life insurance policy and what happens if you pass away during your policy’s grace period.
What is a Life Insurance Grace Period?
A life insurance grace period is a length of time after missing a premium payment where you can make the payment without being charged interest or losing your coverage.
This grace period offers a cushion if you forget to make a payment or are short on funds by the due date. Coverage continues as normal if you make your payment during the grace period.
However, failing to pay by the grace period’s end causes your policy to lapse. You may lose your coverage. You may be able to regain your coverage by applying to reinstate your coverage and paying past-due premiums plus interest.
Otherwise, you may have to apply for a new policy.
How Long Does a Grace Period Last?
Many insurers offer grace periods of about one month, or 30-31 days, to catch up on premium payments.
However, the grace period’s length can vary by insurer. Check with any potential insurer beforehand when you’re shopping around. You don’t want to get caught by surprise with a shorter grace period.
What Happens If the Insured Passes Away During the Grace Period?
If you pass away during your policy’s grace period but made your premium payment, your beneficiaries will receive your full death benefit.
If you pass away during this timeframe without making your premium payment, insurers are still required to review your beneficiary’s claim and make the payout if the claim is valid. However, the insurer can deduct any unpaid premiums from the death benefit. This can result in a slightly smaller payout.
Your beneficiaries may not receive life insurance payouts if you pass away after the grace period ends without paying your premiums.
The Bottom Line
If you miss your life insurance premium due date, don’t fret — your insurer may still offer you a grace period to make your payments penalty-free.
However, ask any potential insurer what grace period they offer before moving forward. Don’t assume they are all 30 days long. If you already have a policy, find out your grace period as soon as possible so you can take proper action in case of a missed payment.
If your coverage has lapsed, but you still need it, reinstate it as soon as possible. The interest or higher rates paid may be well worth the coverage you get back.
All that said, create reminders for premium due dates and consider setting up automatic payments from your bank account. Consider designating a second party, such as a trusted relative or accountant, to receive late payment notices from your insurer.
These actions will help minimize the chances of worrying about losing coverage due to missed payments.
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