Let's
talk about the common grace period for
payment of your life insurance premium.
It's an important safety net but you
want to avoid anything that jeopardizes
your policies' protection so try to
avoid using the grace period all
together. Let's look a little
closer at the payment grace period.
The
standard grace period for payment with
most life insurance policies is 30 days.
but you want to double-check with your
life insurance
agent or carrier as to the
exact details of your policy. This
means that if you payment is due March
1st, you have up to 30 days following
this date to have the payment received
by the carrier. This grace period
typically does not vary depending on the
period of payment (monthly, quarterly,
annually, etc) or by the type of payment
method (credit card, billing,
auto-deduction).
This grace period can really help with
auto-deduction or credit card payments
where the old information (credit card #
or expiration date for example) is no
longer up to date or valid. This
can especially occur when you pay for
longer periods of time such as annually
or bi-annually. People tend to
forget about their life insurance
payment if it's processed once a year
and they have the card stolen or
misplaced in-between. In fact,
this is a common cause of lapsing
policies. We feel that the
automatic renewal options involving
credit cards and auto-deductions are the
safest way to go. The carriers
have found that a policy is less likely
to lapse when set up with these payment
methods. Bills get lost and it's
easier to procrastinate when paying with
a physical bill. Combining
the basic automatic nature of paying via
credit card or auto-deduction and the
grace period safety net in case the
payment information has changed in the
interim provides a solid protection
against lapsing life insurance.
What happens if you miss your grace
period for an existing insurance policy?
At that point, the policy lapses
coverage which means you no longer have
the life protection of the policy.
Your part of the life insurance contract
is that you will continue to pay the
premium as required to keep the policy
in effect. If you miss payment
past any grace period allowed by the
carrier, the contract essentially
cancels going forward. There may
be options to re-instate a life
insurance policy if back premiums are
paid but you do not want to rely on
this. Many
life insurance
policies cancel or lapse
within the first 18 months.
Lapsing a life insurance policy is
generally bad news. First of all,
unless you've recently come into
millions of dollars, the basic
need for life
insurance protection probably
hasn't changed much. If you missed
the grace period, lapsed the policy, and
decide to re-apply for new life
insurance, the rates will likely be
higher since you are now older.
The biggest driver of life insurance
rates is age so any increase in age
means that you will generally pay more
over the life of the policy. The
grace period for life insurance payments
is a protection against this risk but
it's best to rely on it only in a true
emergency in case automatic renewal
payments have an issue. If a
payment does not go through on an
automatic renewal, the carrier will
generally notify you of the issue or
general a paper bill.
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