What Happens to Your Life Insurance Policy in the Event of Non-Payment of Premiums?

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

If you are the owner or beneficiary of a life insurance policy, it is important that you understand how the policy works in the event premium payments are not paid or if the policy lapses.  Understanding the exact policy type is important to figuring out the options available. 

Assuming you are beyond the contestability period of the policy, below are certain options that may be available.

If the policy type is a term life insurance policy, and the owner of the policy dies during the term life of the policy and the policy did not lapse, the beneficiary should have no issues collecting the policy benefits.  If the policy lapsed due to non-payment of policy premiums, the term policy likely is not in force and any claims will be denied.  

If the policy type is a whole life, permanent life or other similar policy, the policy will likely have a cash surrender value.  If the owner of the policy dies and the policy never lapsed, the beneficiary should have no issues collecting the life insurance benefits.  However, if the policy lapsed due to non-payment of policy premiums, the policy may still be in full force and effect.  This is the case because life insurance companies will typically automatically convert a whole life or similar life insurance policy into an extended term policy or reduced paid up policy.

Unlike term life insurance policies, if premiums are not paid under a whole life or similar life policies, the insurance company will typically start drawing against any cash surrender value to continue paying the premiums in order to prevent the policy from lapsing and becoming worthless.  Alternatively, the life insurance company may keep the policy in force, but at a lower death benefit.  If the owner of the policy dies during these periods, the beneficiary may have death benefits payable.  Regardless of the method chosen by the life insurance company, once the cash surrender value is depleted and premiums are no longer paid, the policy will lapse and become worthless.  During the time that the owner of the life insurance policy fails to make premium payments and the insurer is applying the cash surrender value to the policy in order to continue the premium payments, the life insurance company will likely attempt to contact the owner of the policy to communicate this fact and attempt to prevent the policy from lapsing.

If, however, the reason premium payments stopped was because the owner died, the beneficiary should have no issues collecting the benefits.

As always, it is important to read the insurance policy to confirm the terms and conditions of the policy even as to how policy lapses work under your specific policy. 

You can reach Miami Life Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email J.P. directly at jp@yourattorneys.com.

1 Comments
What do you mean by "If the reason premium payments stopped was because the owner died, the beneficiary should have no issues collecting the benefits, even decades later."? Wouldnt the carrier assert non-payment and lapse as a defense?
by Random Poster June 17, 2013 at 05:34 PM
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