Everyone knows that sinking feeling when you realize that you forgot to take care of an important item. It could be something as minor as forgetting to set the DVR for your favorite reality TV show. Or it could be something major such as leaving the house with a pot of boiling water on the stove. Like a swift punch to the gut, the sense of panic hits you like no other. I felt this same panic-stricken feeling when I realized I had let my life insurance policy lapse.
Like most young and growing families, my life insurance needs changed through the years. When I first got married, I purchased a $250,000 term policy to take care of my lovely, new wife in the event something happened to me. After having our first child, a new surge of responsibility hit, and I felt the need to take out an additional $500,000 term policy.
A few years and a second child later, $750,000 of life insurance didn’t seem like enough, so I took out an additional $1.5 million term policy. All three policies were with three separate carriers, which made keeping track of when the premiums were due a bit of a hassle.
Since we liked to pay for the insurance premiums on an annual basis, we waited until we got the premium bill in the mail before we mailed off a check to the life insurance company. For a few years, this went off without a hitch, until that day that I had a seemingly innocent conversation with my wife.
Two of the smaller policies had premium dates that were fairly close together. With the $250,000 premium coming due, I considered dropping it and just keeping the larger two policies. I made a comment to my wife, who typically handles all the bills in our household, to go ahead and let the smaller policy lapse. Being a horrible delegator, I did a poor job of explaining to her which company was which, so instead of letting the $250,000 term policy lapse, she mistakenly let the $500,000 policy lapse.
To make matters worse, I didn’t catch the mistake until several months after the premium date was due. Remember that panicked, sickening feeling I referred to? This is when it hit, and oh boy, did it hit hard. My mind started racing on what I’d have to do to get the policy reinstated. I knew that I was still young and in very good health, so worst case scenario was locking in another affordable life insurance policy shouldn’t be that big a deal. But knowing that the underwriting process could take sometimes four to six weeks, it’s something that I wasn’t crazy about going through again, not to mention the fact I’m not a big fan of being poked by needles.
Getting on the phone
At the first available opportunity, I got on the phone and called the insurance company, preparing myself for the worst. After getting the customer service representative on the phone, I realized it wasn’t as bad as I initially had predicted. I learned that most insurance companies allow what’s called a “grace period.” This grace period is a time, approximately 30 to 31 days after the premium was due that allowed you to send in the premium payments and your life insurance policy would continue with no interruptions.
Apparently, I’m not the only one that misses their life insurance payment, thank goodness. As I mentioned, I was far past the forgivable grace period, so in the life insurance world my policy had officially lapsed. The customer service representative informed me that all I had to do was request a form called the Application for Reinstatement.
Once I completed that form and mailed in the check for the entire annual premium the policy would be reinstated. She did inform me that if I had any health conditions that had occurred after the policy had lapsed I would have to indicate that on that form. As you can see, for someone that has some type of pre-existing high-risk condition, this could be fatal.
How to avoid this
I was one of the lucky ones that wasn’t hurt by letting my policy lapse, but I definitely don’t want that to happen again. Instead of manually sending a check in for our life insurance premiums, we have now have it on auto-draft. That way we never have to experience it again!