At some point, you wisely purchased insurance to protect you and/or your dependents from the financial risk of premature death, disability, critical illness, or the need for long-term care.
To get that coverage, you likely did one or more of:
- Answer a bunch of medical history questions
- Provide blood and urine samples and possibly an EKG
- Permit your doctor and any specialists to provide medical reports to the insurance company
- Provide proof of income (in the case of disability insurance).
In other words, this was a decision you thought about and committed to.
Now you’re covered; you’ve looked after your dependents. The insurance company is on the hook for a claim, even if your health deteriorates, as long as you pay your premiums. The premiums are your only contractual obligation.
But if you miss!
But one day you miss or are late paying your premium. It might be because:
- Your automatic monthly payment was rejected because of insufficient funds
- Your automatic monthly payment was rejected because you closed your bank account
- You pay annually and you didn’t receive your premium notice, or you overlooked it.
You have 30 days
Most insurance companies offer a 30-day grace period to catch up on the missed monthly or annual payment. As long as you make that outstanding payment within 30 days of the due date, the policy stays in force. In fact, most policies will pay a claim if it occurs (a death for example) during the 30-day grace period.
After 30 days
After 30 days? The policy has lapsed and coverage ceases. It’s true, many life insurers will reinstate the policy within two years, but medical evidence is required. And if your health status has changed negatively? Reinstatement may be declined.
Another possibility is that the insurance company offers reinstatement but at a higher price, or with new coverage exclusions that weren’t part of the original policy.
What to do?
What should you do if you are offered reinstatement under less attractive terms than your original policy? If you still need the coverage, accept the new terms and consider applying elsewhere for better terms. If another carrier will provide coverage at a better price or with fewer or no exclusions, you can replace the original policy once the new policy is in hand.
Note that it’s not just about changes in health. Financial changes can undermine a disability insurance reinstatement request; coverage amount is a factor of earned income. If at the time you attempt reinstatement, your income is much lower than when you applied (say you are temporarily in-between jobs), reinstating coverage at the previous level may not be possible.
Moral of the story
Do not miss your insurance payments! Of course, you don’t want to miss any payments. But missed insurance payments can carry a particularly high penalty.
If your payments are annual, create an annual reminder in your electronic calendar. You may even want to do that for automatic monthly payments, to ensure funds are on hand (although that comes at a cost). Also, put your insurance company on the list of organizations to notify of an address change.
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.