The specific consequences of a lapsed life insurance policy can vary depending on the terms and conditions of the policy and the insurance company's policies.
Here are some general outcomes that can occur when a life insurance policy lapses:
Coverage Termination: Once the policy lapses, the insurance company terminates the coverage, and the policyholder is no longer protected by the life insurance policy.
Loss of Death Benefit: In the event of the insured person's death after the policy has lapsed, the beneficiary will not receive the death benefit payout. The purpose of life insurance is to provide a financial safety net for the policyholder's loved ones, and when a policy lapses, this benefit is lost.
No Cash Value: Some life insurance policies, such as whole life or universal life, may accumulate cash value over time. If the policy lapses, the policyholder typically forfeits any accumulated cash value, which could have been accessed through policy loans or withdrawals.
Reinstatement Period: Many insurance policies have a reinstatement provision that allows policyholders to reinstate their lapsed policies under certain conditions. This typically involves paying any outstanding premiums, providing updated health information, and meeting other requirements set by the insurance company. The policyholder may need to demonstrate insurability, and additional fees or interest may apply.
Premium Arrears and Penalties: When a policy lapses, the policyholder usually becomes liable for any outstanding premium payments. The insurance company may charge late payment fees, interest on the unpaid premiums, or other penalties. The policyholder would need to settle these arrears to reinstate the policy or, in some cases, surrender the policy for its available cash value.
It is essential to contact the insurance company directly to understand the specific consequences of a lapsed life insurance policy and explore any available options for reinstatement or alternative solutions.
Learn more about what happens when life insurance lapses.