Why Did a Non-Payment of Premium Cancel Your Life Insurance Policy?

A life insurance policy is a contract between an insurer and a policyholder, promising that in exchange for premiums paid by the policyholder, a death benefit will be paid to named beneficiaries upon the insured’s death. Life insurance is critically important for many families, so the wrongful cancellation of a policy over non-payment of premium could be a serious issue.

What Does Non-Payment of Premium Mean?

A life insurance policyholder is required to pay regular premiums in exchange for death benefits. But in cases of non-payment of premium, a policyholder could forfeit the policy.

Essentially, non-payment of premium is when a policyholder fails to pay their premium on time. It doesn’t necessarily mean that your life insurance policy will be cancelled, but it could be.

Why Would a Non-Payment of Premium Result in the Termination of Your Life Insurance Policy?

Premium payments are required as part of the policyholder’s contract with the insurer, which is a legally-binding document, and non-payment of premium could potentially result in the policy being cancelled.

In fact, this is a fairly common situation. It is easy to forget payment due dates, especially when unexpected life events occur, and a policyholder neglects to make their regular premium payment, even when they have faithfully paid these premiums for years.

Cancellation over non-payment of premium is quite common, and most often occurs after policyholders receive notifications about their accidental non-payment of premium but choose to ignore it or put off dealing with it. It is essential that as soon as you find out about your non-payment, you contact the insurer to explain the mistake and rectify the situation as quickly and favorably as possible.

Ask your insurance representative what you can do to keep your policy in place. You may be able to negotiate a reinstatement. If you did not pay your premium due to a hardship, such as a hospital stay, a death in the family, or financial trouble, then explaining these circumstances may help your case as you ask for reconsideration. Particularly if you have been a policyholder for a significant period of time, an exceptional circumstance like this can result in the negotiation of new payment terms. In some cases, your insurer may not agree to renegotiate, so you may be required to pay the full amount due prior to cancellation in order for the policy to be reinstated.

The best way to avoid this situation is to stay current with your premiums and never ignore late payments or cancellation notices so that you avoid non-payment of premium in the first place.

Is a Grace Period Required Prior to Termination?

Fortunately, insurance policies don’t get cancelled immediately upon the policyholder failing to make a single payment. In fact, life insurance companies typically offer a 30 or 31-day grace period — a cushion of time between failure to pay and your policy lapsing — before terminating coverage. After initially missing a payment, you should receive a late-payment notification that kicks off the grace period. If you allow your policy to lapse after failing to pay during the grace period, you may need to apply for a new policy, which may very well have higher rates.

If the policyholder dies during the grace period and has not yet made the payment, the named beneficiaries will still receive the death benefit, minus the amount the policyholder owed upon their death.

If you miss the grace period and your policy lapses, you can typically apply for reinstatement of your policy within three to five years of the lapse. If the lapse is longer than a few months, you will probably have to answer some health questions or take another life insurance medical exam to prove you haven’t become too risky to insure.

The penalty for non-payment of premium — and then failing to address that non-payment quickly — could result in the cancellation of your policy.

What Can You Do if Your Policy Was Cancelled Without Notice?

It is not illegal for insurers to cancel an insurance policy for non-payment of premium — in fact, they can and will since non-payment is a failure on the policyholder’s part to maintain their end of the contract. However, California law requires that insurers follow a specific set of procedures to protect consumers from wrongful cancellation.

The penalty for non-payment of premium should never be instant policy cancellation.

In California, there is a 60-day grace period for life insurance policies, and 30 days’ prior written notice before policy termination.

However, some policyholders claim that their policies have been wrongfully cancelled without notice. If your policy was cancelled without the proper notice required by law, you may be able to file a lawsuit.

Have Any Non-Payment of Premium Lawsuits Been Filed?

Some plaintiffs have come forward with allegations that their policies were cancelled without adequate notice. Plaintiff Susan P. alleged that her husband, Michael, had a life insurance policy through MetLife. Susan says that Michael’s life insurance policy was wrongfully cancelled in 2016 after he missed a single payment following 12 years of consistent payments. Michael died in May 2018.

Susan alleges that her late husband tried numerous times to have his policy reinstated after it lapsed. She argues that MetLife failed to properly comply with California law regarding policy termination, including the 60-day grace period and 30 days’ prior written notice, along with the yearly opportunity to have a third party receive important notices.

Can You Seek Legal Help?

More and more people are turning to litigation over problems with their life insurance policies, such as unfair policy cancellation, particularly in situations where no notice was given.

If you or a loved one has had your life insurance policy wrongfully terminated after non-payment of premium, you may be able to file a lawsuit and pursue compensation. Filing a lawsuit can be a daunting prospect, so Top Class Actions has laid the groundwork by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexities of litigation, and maximize your potential compensation.

Join a Free California Life Insurance Wrongful Termination Lawsuit Investigation

If you believe that a life insurance company wrongfully canceled your life insurance policy due to nonpayment of premium, or if you were the beneficiary of a life insurance policy that was terminated or for which a claim was denied for non-payment of premium, you may have a claim.

To qualify for this investigation, the life insurance policy must have initially been issued in California or the policyholder must currently reside in California.

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This article is not legal advice. It is presented
for informational purposes only.