When a life insurance policy’s premiums are not paid, the policy lapses and the buyer risks losing their protection. In most cases, policyholders have a grace period during which premiums can be paid. For term life Insurance in Boston, the policy lapses if the premium goes unpaid after that time while cash value policies lapse if their value is not enough to pay the premium. Should a policy lapse, the insurer usually gives the policyholder a certain amount of time to reinstate it.
What Happens When a Life Policy Lapses
If a person owns a whole life policy that has cash value, the insurer takes that value to pay the premiums until it’s spent. If the cash value of the policy is all spent, the policy lapses. For holders of term life policies, a lapse occurs after the grace period goes by without a payment. Policy protection ceases, and beneficiaries are not paid in the event of the policyholder’s death. All premiums paid are forfeited, and cash value policies lose their value.
Regaining Coverage After a Policy Lapses
Reinstating life Insurance in Boston that has lapsed has costs other than the premiums. According to some insurers, to reinstate a life insurance policy, the buyer may have to pay the overdue premium plus interest. If the policy was borrowed against before the lapse, the loan has to be repaid. Some insurers offer a long grace period to reinstate a lapsed policy, but others offer a shorter reinstatement period or even decline to reinstate policies after lapses. Some policyholders may have to get another medical exam, and rates frequently increase.
Consequences of a Lapse
Allowing policies to lapse can cause problems when shopping for insurance in the future. Most companies overlook single lapses, but multiples can lead to higher premiums and application denial. While some insurers do not ask about past lapses, others make decisions on a case-by-case basis. Generally speaking, most insurers deny applications made by those with a history of failure to pay premiums.
Buying a Policy
Most insurance industry experts tell customers to buy life insurance while they are still young. As people get older, insurance costs more. To avoid issues caused by policy lapses, customers should Click Here to have the Sawyer Insurance Agency Inc. completely re-evaluate their coverage, needs, and lifestyle. A lapsed insurance policy does not just affect its holder; it also affects their beneficiaries.
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