All of us have trouble paying the bills from time to time. Whether its during the holiday season or perhaps during a lapse in employment, we all just fall short now and again. When that happens, we have to prioritize which bills we can pay and which bills we can let go for another month or two.
Not surprisingly, life insurance premiums are one of those bills many people put at the bottom of the priority list. After all, the benefits don’t kick in until after we die. When you’re having trouble making ends meet while living, paying for a death benefit for someone else can seem superfluous.
As attorneys who specialize in contesting life insurance claim denials, we have seen some of the dire consequences that can result if life insurance premiums go unpaid for too long. While there are some legal constraints with respect to what penalties the life insurance company can impose for non-payment, eventually the insurer is allowed to cancel an otherwise valid policy.
This article breaks down the different phases in non-payment of life insurance policy premiums and the consequences that may occur in each phase.
The grace period
Even the most diligent among us can forget to pay a bill every once in a while. Life insurance companies understand this (and, truthfully, the law of most states demands that they do). Typically speaking, so long as you pay your life insurance premium within thirty days of the due date, there is no real consequence when it comes to the effectiveness of your policy.
For example, imagine that Bill has a life insurance policy worth $400,000 and his wife Melody is the sole beneficiary. Bill has faithfully paid the premiums on time for years but after some unexpected medical bills, finds himself short on funds.
Let’s further imagine that Bill’s premium payment was due on January 15 but he was unable to make the payment on time. To take the example one step further, let’s say that Bill died in an automobile accident on February 2. At the time he passed away, he had not yet made the scheduled premium payment.
Generally speaking, the life insurer would pay Melody’s claim for the death benefit under Bill’s policy. This is because Bill’s death came well within the grace period. But what happens if nonpayment goes beyond the thirty day grace period?
The cancellation/reinstatement period
After thirty days of nonpayment on a life insurance policy, things get a little more dicey. While the protocols vary from state to state and insurer to insurer, most cases look something like this:
- The policy is cancelled. Returning to the above example, let’s say that Bill dies on February 20 without having paid his premiums. His policy probably would have been cancelled as of January 31. If Melody files a claim for death benefits, her claim will likely be denied. Absent extenuating circumstances, there isn’t much that can be done to overturn that claim denial.
- The policy is reinstated. In many circumstances, Bill has sixty days after cancellation to get his policy reinstated. To do this, of course, he must pay all past due premiums. Even if he does that, however, he may not have the same policy he had prior to missing his premium payments.
The trouble with reinstatement
Even though policy reinstatement sounds like a great deal, it doesn’t come without consequences. Perhaps most significantly, the life insurance company may require updated health information before the policy can be made effective again.
In some cases, insurers will require an entirely new policy application (like the one the insured filled out in order to get the original policy). Depending on the responses given in that application, the insurance company may then require a medical exam and various tests before the policy can be reinstated. This process can be problematic for a lot of people.
Returning again to Bill and Melody, let’s say Bill first obtained his life insurance policy when he was 43 years old. At the time, he was in perfect health and his policy application reflected that. In light of Bill’s health status, the life insurer charged him a relatively small premium for that $400,000 policy. Bill and Melody paid the monthly premium faithfully for 15 years before they fell into financial hard times.
At the time Bill is seeking reinstatement, he is 58 years old. He has gained quite a bit of weight over the past 15 years and his blood tests show that he is pre-diabetic. In addition, he has developed a heart murmur and exercise-induced asthma. In other words, he is a much greater life insurance risk at this point in his life.
You better believe the insurance company is going to penalize him for that. In the event the life insurer will even grant him a policy in his current condition, he is going to pay much higher premiums than he was paying before he skipped a few payments. This is not going to be helpful for a couple that was struggling to pay the bills anyway.
The reason we are dedicating an entire article to this topic is because potential clients often come to us when they have had a claim denied due to the nonpayment of premiums. While there are certainly circumstances where those claim denials can successfully be contested, often the law is on the side of the insurance company.
That’s why we advise our clients (and our friends) to make life insurance premium payments a priority. While life insurers still issue bogus denials of valid claims against fully-paid policies, we can fight those claim denials. When it comes to fighting for benefits under a life insurance policy that has been cancelled, however, our hands are often tied.Regardless of your life insurance claim denial circumstances, we want to talk to you about your situation. There’s always a chance we can contest your claim denial and get you the money your loved one intended for you. Call us today. We’re here to help.