What is a Life Insurance Grace Period?
A grace period is a length of time, typically either 30 or 31 days when it refers to life insurance, that the policy holder has to pay the premium before the policy will be cancelled. During this period of time, all of the policy’s provisions will remain in force and effect. The grace period often begins on the date that the premium is due.
If the policy does lapse due to non-payment of premium, even after the grace period has elapsed, it may be able to be reinstated. The reinstatement provision provides certain protections for both the insurance carrier and for the policy owner.
It refers to the situation where the premium was not paid by the end of the grace period and the policy lapsed due to non-payment. (If the policy is a universal life or a current assumption whole life policy, this refers to a situation where the policy does not have a sufficient amount of cash value to pay the monthly amount of mortality and expense charges that are due.)
With reinstatement, the policy owner wishes to reactivate the policy, and for the insurer, it means that the insurance company wishes the underwrite the risk again in order to reinstate the policy.
One of the conditions that is necessary for a policy reinstatement is that the insured must prove insurability. Typically, if the policy has only been lapsed for less than one month, however, the insurer will only require a signature from the insured stating that they are still in good health. The longer that the policy has been lapsed, however, the more extensive underwriting it will take to reinstate it.
Even with a reinstatement period in effect on a life insurance policy, it is typically better for a policy owner to pay the premium on time, and well within the time limits of the policy’s grace period provisions.