What Is A Grace Period In A Life Insurance Policy?
Grace periods are common in most financial products. The grace period in a life insurance policy is meant to protect the insured. If there is a lapse in the premium payments, it is to prevent the life insurance company from requiring the insured to provide proof of insurability again.
When you first purchase a life insurance policy, the insurance company will require you to provide evidence you are insurable, by requiring medical physicals and/or certain documents. However, it would not make sense or be in fair practice if a life insurance company was allowed to keep requiring the insured to provide evidence of insurability. For this reason, most if not all, insurance companies will have a standard grace period in its policies. Also, it is important to understand that there is no interest to be paid during these grace periods.
In this stipulation, there is no proclamation that says that interest needs to be paid to the life insurance company on a premium that is paid during these grace periods.
How Do Grace Periods Affect You?
During the set grace period, typically 30 or 31 days, most life insurance companies will send the insured at least two premium due or past due notices and will inform the life insurance agent that your policy is in danger of lapsing. Agents are usually notified toward the end of the grace period, kind of a courtesy so no one is calling the policyholder when “you” are simply a little late with the premium.
The policy really does lapse after the grace period and at that point there is no death benefit paid.
If your life insurance policy lapses after the grace period, the insurance company will allow a reinstatement by simply completing a good health statement attesting to no health changes and the payment of any premium(s) due since the original due date. There will come a point where a reinstatement will only be entertained with a full reinstatement application and medical underwriting.
During the grace period if the policyholder dies, even if the bill was not paid, the policy is in force and a valid claim would be paid in full, minus the amount of premium due.