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Claim Denials Due to Lapsed Life Insurance

With a life insurance policy, you pay an insurance provider a premium every month in exchange for financial benefits for your family if something should ever happen to you. A valid life insurance policy that is up-to-date on its payments will give your beneficiaries financial security if you pass away.

If you intentionally or unknowingly allow your life insurance policy to lapse, however, you will lose your coverage – meaning your beneficiaries will not receive any money, even if you’d paid all of your premiums up until the missed payment.

What is a Life Insurance Policy Lapse?

A life insurance policy lapse is a loss of insurance coverage due to the insured’s failure to make one or more payments. A lapse means the insurance company terminated the coverage due to a lack of premium payments. The policyholder will no longer be insured, and the beneficiaries listed on the life insurance policy will not be eligible for financial benefits if the policyholder dies.

If a policyholder intentionally or accidentally allows a life insurance policy to lapse, he or she will no longer have coverage, even if the policyholder attempts to submit a late payment or payments to make up for missed bills. The policyholder also will not receive a refund for the payments he or she made on the life insurance policy prior to the lapse.

Although many life insurance companies allow clients to reinstate lapsed policies, they often charge additional fees and higher premiums for this privilege. Otherwise, the only way to get life insurance back after a policy has been terminated is to purchase a new plan during the next open enrollment period.

Common Causes of Policy Lapses

It is easier than most policyholders think to miss a payment on a life insurance policy. If you pay manually each month, it can be easy to forget or get mixed up and accidentally skip a month. Even with an automatic payment plan, you could encounter problems related to your bank information or the insurance company’s website.

If you are not paying careful attention to your life insurance coverage, the following issues could lead to a lapse:

  • Automatic payment plan problems
  • Website malfunctions
  • Changes to your card or bank account
  • The insurance company adjusting its procedures
  • New laws changing your policy
  • Lack of insurance company notices or warnings
  • Forgetting to send a payment
  • Intentionally letting a policy lapse

If you miss a payment, you will have a grace period to make it up. If you do not pay the missed premium by the end of your grace period, however, you will lose coverage.

Payment Lapse Laws

If a life insurance plan lapses due to the insured failing to pay his or her bill, the insurance provider legally must inform the insured of the issue. The insurance provider must issue multiple notices: the first when a payment is missed and the life insurance policy is in danger of lapsing, and the second when the policy has officially lapsed and the client is no longer covered.

All insurance companies must provide grace periods between the first missed payment and the termination of coverage. These grace periods are usually 30 or 31 days but can vary by company and location. The grace period starts on the date of the first missed payment. During this period, you will still have full coverage under your life insurance policy. Due to the coronavirus pandemic, many life insurance companies are offering extended grace periods of 60 to 90 days for those experiencing unemployment or financial hardship.

Get Help From an Insurance Bad Faith Lawyer

A life insurance company may try to save money by engaging in bad faith insurance practices, such as denying coverage or terminating a policy without a legitimate reason. If you believe a lapse in life insurance coverage is connected to insurance bad faith, contact a lawyer in Phoenix for a consultation. An insurance bad faith lawyer may be able to help you recover financial benefits and hold the insurance provider accountable.