What Is a Life Insurance Policy Lapse Notice?

Rebecca Parson
Rebecca Parson

Rebecca Parson

Author

Rebecca Parson is a financial and tech writer with 10 years of experience writing about topics such as life insurance, commodities investing, and the SaaS industry. She has a master’s degree from Johns Hopkins University and a bachelor’s degree from the University of Mary Washington. Her writing has appeared at money.com, sacbee.com, cart.com, herodevs.com, blanchardgold.com, and more.

Brian OConnel
Brian OConnel

Brian O'Connel

Contributor

Brian O’Connell has been a contributing writer for U.S News & World Report since 2016. A former Wall Street bond trader and the author of two best-selling books; “The 401k Millionaire” and “CNBC’s Creating Wealth”, he has 20 years experience covering business news and trends, particularly in the business and financial sectors. He believes education is the best gift a financial consumer can receive – and brings that philosophy to every story he writes. His byline has appeared in dozens of top-tier national business publications, including CBS News, Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, TheStreet.com, Yahoo Finance, CBS Marketwatch, and many more.

By Rebecca Parson, Brian O'Connel
Author, Contributor, Life Insurance

A life insurance policy lapse notice is an official communication from a life insurance company letting you know it will cancel your policy if you don’t pay premiums within a certain period.

Most people who receive a lapse notice just let their policy lapse, but this can be an expensive mistake. Before doing that, you should:

  • Make sure the insurance company followed the law when providing the lapse notice.
  • Look into selling your policy in a life settlement if you don’t need the policy anymore.
  • Pay the overdue premiums to get coverage again, if you’re still in the grace period.

We go into more detail on these points below, but the important thing to know is that you have alternatives to letting your policy lapse.

Get in touch with Beca Life to find out if you can sell your life insurance policy in a life or viatical settlement

You can call us directly at 848-456-8333, or send us a note here.

Is There a Grace Period for a Life Insurance Lapse?

Yes, there is a grace period of 30 or 60 days for a life insurance lapse. If the insured person dies during the grace period, the policy is still in effect, and their beneficiaries will receive the death benefit.

What Happens When Your Life Insurance Lapses?

The consequences of a lapsed insurance policy can differ depending on whether you have term life insurance or whole life insurance.

Whole Life Insurance Lapse

Whole life insurance policies usually have an automatic premium loan feature — if so, the insurance company will use the policy’s cash value to cover the missed premium payment. If the cash value isn’t sufficient to pay the premium or is depleted due to continued non-payment, your policy will go into a grace period. 

Term Life Insurance Lapse

For term life insurance policies, which don’t have cash value, a missed payment immediately puts the policy into a grace period. If the premium isn’t paid by the end of this period, the policy lapses. This means your beneficiaries won’t receive the death benefit, and the premiums you’ve paid will be lost.

4 Things to Know If You Get a Life Insurance Lapse Notice

1. You May Be Able to Sell Your Life Insurance Policy By Doing a Life Settlement

You can sell your policy in a life settlement transaction if your policy is eligible. To be eligible, you typically have to be over 65 years old or have a terminal or chronic illness. If your policy qualifies, the buyer will pay you a lump sum for your policy, pay all premiums going forward, and receive the death benefit when you die.

If you let your policy lapse instead of selling it, you could miss out on tens or hundreds of thousands of dollars.

2. You Can Reinstate Your Lapsed Life Insurance Policy

If you’re still in the grace period, you can pay your overdue premiums and your policy will stay in effect. If the grace period ends without payment, the policy officially lapses, resulting in coverage terminating and no death benefit being paid.

If you let your policy lapse, you may be able to reinstate it for two to five years after it lapses, but you’ll have to go through a new underwriting process, a possible medical exam, and a waiting period. You’ll also have to pay all the premiums you missed during the time you weren’t covered.

Additionally, reinstatement after lapse triggers a new two-year contestability period. If there were any inaccuracies in your original or reinstatement application, the insurer could cancel your policy within two years of reinstatement.

3. There Are Certain Disclosure Requirements

Certain states require life insurance companies to let you know you have the option of a life settlement. Only a few states require this, but the life settlement industry is lobbying to educate seniors about this alternative to letting the policy lapse. 

For example, Rhode Island requires insurers to include these alternatives in a lapse notice:

  • Accelerated death benefits available under the policy or as a rider to the policy.
  • Assigning the policy as a gift.
  • Selling and assigning the policy through a life settlement contract (a regulated transaction under chapter 72 of title 27 in this state).
  • Replacing the policy.
  • Maintaining the policy according to its terms, a rider, or through a life settlement contract.
  • Maintaining the policy with loans from an insurer or a third party, using the policy or its cash surrender value as collateral.
  • Converting the policy from a term policy to a permanent policy.
  • Converting the policy to get long-term care health insurance or a long-term care benefit plan.

4. You Must Have Received a Timely Lapse Notice

A life insurance company can’t terminate your policy if they didn’t send a timely lapse notice, which means mailing you a pending lapse notice 30 days before the policy terminates. The company is also required to give you a 60-day grace period that doesn’t overlap with any time you’ve paid premiums for.

Check the dates on your lapse notice carefully and read your policy paperwork to make sure the insurance company is acting within the law.

FAQs About Life Insurance Lapse Notices

What Is a Lapse Notification?

A lapse notification is an official notice from your life insurance company that it will be canceling your policy due to nonpayment. If you receive one, you have options besides letting your policy lapse, including selling it in a life settlement.

Does Lapse Mean Cancelled?

A life insurance lapse notice doesn’t mean your policy is already canceled — it means it will be canceled in the future (usually within 30 days). 

What Happens After Policy Lapse?

After policy lapse, your life insurance coverage ends and your beneficiaries won’t receive a death benefit. 

What Is Required to Reinstate a Lapsed Insurance Policy?

To reinstate a lapsed life insurance policy, you’ll need to complete a reinstatement application that includes your updated health information, pay all the missed premiums, and clear any policy loans you took out on the cash value. You may also need to do a medical exam and undergo a waiting period.

Sell your life insurance policy for cash.

See if you qualify now.

We’re here to help. Speak with a Policy Specialist today at +1 848-456-8333