Life Insurance Grace Periods: A Complete Overview

Published December 7, 2022

Life Insurance Grace periods

In recent years, online banking and payment technology have eased the stress of paying your bills—from credit card debt to insurance premiums. However, sometimes life gets in the way, and busy schedules, unexpected illnesses, or even human error can result in late or incomplete payments.

When it comes to life insurance, the stakes of missing a premium are high. These payments provide crucial financial support for loved ones if the insured person dies. Late or missing premiums could cause a lapse in coverage—and deprive beneficiaries of the policy’s death benefit. If the unexpected occurs and policyowners miss a due date, grace periods can offer a much-needed lifeline.

The grace period for a life insurance policy is the timespan when policyowners can make a late payment and still maintain coverage. As an expert in the life settlement industry, Coventry Direct has wide experience navigating the intricacies of this safety net and providing guidance for those looking to sell life insurance policies. Discover our guide to grace periods, including their typical length, relevance for different types of life insurance, and the repercussions of repeated delinquencies.

What is A Life Insurance Policy’s Grace Period?

For those who have heard of grace periods in general, you may be wondering, what is an insurance policy’s grace period? Simply put, a life insurance grace period is the amount of time insurance companies allow policyowners to make premium payments beyond their due date without losing coverage.

It is important to note that grace periods are distinct from a similar life insurance term: waiting periods. In contrast to grace periods, waiting periods occur at the beginning of the policy’s active period. They refer to the time between registering for the policy and the first date of coverage. 

Not every policy comes with a grace period; a grace period depends on your state’s requirements and your insurance company’s specific policies. Certain states require grace periods by law in all insurance policies, so insurers cannot cancel coverage the day after a premium is due. However, grace periods can also exist in states without these requirements if an insurance company decides to insert them into their policies. Your insurance company will specify the length of your policy’s grace period, as well as any penalties for late payments.

How Long Does A Life Insurance Grace Period Usually Last?

There is no standard grace period across all insurance policies. They can range from as little as 24 hours to 30 days, depending on the state and insurance provider. Some providers may even offer several grace periods whose fees increase with the period’s length. Installing automatic premium payments or reminders can help policyowners keep track of these bills and ensure they never enter the grace period or pay late charges.

When policyowners sign up for new insurance, they must always ask, how long is the grace period for an individual life insurance policy? We recommend that you speak with a representative from your insurance company at the beginning of an active policy to determine how much leniency they have for late payments.

Making A Payment During A Life Insurance Grace Period

At first glance, life insurance grace periods may seem like a harmless safety net for the occasional forgetful occurrence. However, the reality of making a payment during a grace period is slightly more complicated. 

Grace period insurance payments can come with consequences—from late fees to decreased future coverage—and it’s important to understand the repercussions specific to your policy. Let’s take a nuanced look at making payments during the grace period for a life insurance policy.

What If You Make Your Payment During Your Grace Period?

Let’s say you miss a premium due to sickness or forgetfulness. If you are within your policy’s grace period, you can still make the payment and keep your coverage active. Should the insured person die during the grace period, the insurance company is obligated to provide the full death benefit, minus the missing premium. 

You will likely have to pay extra fees for the payment delay. As a general rule, longer grace periods come with larger late fees. If you get in the habit of making payments during the grace period, these costs escalate. Should grace period insurance payments become your norm, your insurance carrier will likely raise your premium—or even cancel coverage. 

Policyowners with a history of late payments will find obtaining replacement coverage more difficult than before. Insurance carriers could become reluctant to grant you a future policy if they perceive an abuse of the grace period. If they do agree to provide coverage, you could find yourself paying higher premiums that take into account the insured person’s worsening health as well as a lower death benefit.

What If You Make A Payment After Your Grace Period Has Passed?

Neglecting to make a payment before the end of your grace period will result in the lapse of your policy.​​ If the insured person dies after this lapse, their beneficiaries will not receive the policy’s death benefit. 

But this does not have to mean the end of your policy. Some life insurance companies allow policyowners to reinstate policies after a lapse within a certain time frame. In exchange for restarting your coverage, policyowners will usually have to pay a late fee and higher premium payments for the duration of the policy. 

Reinstating a policy may not even require underwriting—including a reevaluation of the insured person’s health status—if it occurs within a specified window after the policy lapse. If you reinstate your policy after this window has passed, you will have to undergo the underwriting process. The insurance company will take stock of any major differences in the insured person’s medical condition since the beginning of your policy and reflect these through an increased premium.

What Is the Difference Between Term vs. Permanent Life Insurance Grace Periods?

There are two main types of life insurance—term life insurance and permanent life insurance—and the two categories apply grace periods in vastly different ways. The distinction comes down to the fact that permanent life policies accumulate cash values and term policies do not.

Grace periods are normally associated with term life insurance, not permanent life insurance. In a term insurance policy, policyowners fund ongoing premiums in exchange for a specified level of coverage over a certain time span. When you miss a premium payment, the insurance company loses money. Grace periods are the ticking clock that give the company a chance to recover the loss through a late payment while limiting the time they are responsible for coverage.

In contrast, permanent life insurance policies rarely enter the grace period. When you contribute to permanent life insurance premiums, part of this payment goes towards a savings vessel that grows over time. If you forget to pay the premium on time, the insurance company can use this savings to cover any loss in premium income until the cash value runs out. 

Typically, the accumulated cash value means policyowners have a much longer period before  they enter the grace period or lose coverage. It also means they have the option to cash in on the life insurance policy’s accumulated savings by selling their policy in a life settlement. For policyowners who no longer want or need their permanent insurance policy, the life settlement experts at Coventry can help you make far more than you would by surrendering your policy.

Should You Consider A Life Settlement Option?

Finding yourself consistently on the verge of entering a grace period is a position of stress that strains budgets and disturbs peace of mind. Though grace period insurance payments can often signal an inability to continue paying premiums, it does not mean you have to give up on the money you’ve already put into your policy. If you are struggling to keep up with costly life insurance premiums, a life settlement is a popular option that both erases the obligation to pay future premiums and helps you recover as much as 50% of your policy’s death benefit.

When you sell your policy through a life settlement, the buyer assumes paying all premiums in exchange for the policy’s death benefit when the insured person dies. Life settlements are viable for both permanent and term life insurance and provide a payment to spend on anything you want—from aging expenses to relaxing getaways.

If your beneficiaries no longer need financial support, selling your life insurance for cash can ease your financial burdens and your stress. If you’re interested in discovering the worth of your life insurance policy, Coventry Direct is here to help, answer questions, and guide you through the entire process.

Closing Thoughts

Life insurance policies can be complex and difficult to understand at a glance. Though it may be tempting to skip over seemingly unimportant terms like grace periods, understanding the fine print can help you avoid high fees and maintain coverage through premium payment delays. Making an effort to understand the concept of grace periods in detail and seeking out your policy’s specific grace period can make all the difference—ensuring those closest to you receive a financial boost when they need it most.

Want to learn more about how you can cash in on your policy through a life settlement and keep your coverage alive with life insurance grace periods? Explore our library of resources or contact the life settlement experts at Coventry Direct today.

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