What Happens if You Stop Paying Life Insurance Premiums?

How Do Life Insurance Payments Work?

Most life insurance companies let you choose between monthly, quarterly, semi-annual or annual payments. Choose the structure that makes it easiest to stay on track and keep your policy in force.

• Monthly or quarterly payments: You may want to make monthly or quarterly payments if it's easier to budget for. Keep in mind, some insurance companies charge additional fees to process monthly payments, which can cost you more overall.
• Semi-annual or annual payments: You may prefer to pay your premiums semi-annually or annually to avoid the extra processing fees. You'll save money, but you'll need to budget for the larger payment so you'll have enough when it's due.

If you have a group life insurance policy through your employer, they may cover a portion or all your payments. If you do have to pay, it's usually deducted automatically from your paycheck. This coverage is typically a term life policy that lasts as long as you stay with your employer. If you leave, you may be able to convert the plan into a permanent policy and make payments directly to the provider.

Does Your Policy Lapse if You Miss a Payment?

Whether your coverage will lapse if you miss a payment depends on the type of life insurance you have and the terms and conditions set forth by the insurance provider.

Term Life Insurance Lapse

If you have a term life insurance policy, expect coverage to lapse if you miss a payment. Term life has no cash value, so there's nothing for your insurer to draw from to satisfy the payment.

Many insurers allow you to reinstate your policy after it lapses. You may have to reapply and go through underwriting again, which means your premiums could be higher. Your coverage could also be denied if your health has changed. Remember, once your policy lapses, you won't have coverage until your account is reinstated or you open a new policy. If you pass away during this period, your beneficiaries won't receive a payout.

Permanent Life Insurance Lapse

Your policy may not automatically lapse from a missed payment if you have permanent life insurance, such as a whole or universal life policy. If you've built up cash value in your policy, your insurer can pull from it to cover your missed payment. You may be able to keep your policy active using your cash value funds for several months or even years if there are enough funds to cover the premiums.If you stop making payments or simply want to cancel your policy, the law requires permanent life insurance to include what's known as a nonforfeiture clause. This provision gives you three primary ways to use your cash value so you don't simply forfeit the value you've built over time.

• Cash surrender: You can cancel the policy and cash out the accumulated cash value. The trade-off is that your coverage ends, and you may owe income taxes if the payout is higher than what you've paid in premiums.
• Reduced paid-up insurance: With this option, you'll use your cash value funds to buy a smaller policy that's paid in full. You'll have a reduced death benefit, but you'll enjoy lifelong coverage without having to make payments.
• Extended-term insurance: Another option is to use your cash value to buy term coverage instead of whole life. You'll keep the same death benefit amount, but only for a set number of years, generally between five and 20 years. Once the term runs out, the coverage ends.

Learn more: How to Cancel a Life Insurance Policy

What Is the Life Insurance Grace Period?

A grace period is a time window you have after the due date to bring your account current so you don't lose your coverage after missing a payment. This grace period is usually for 30 days, but some insurance companies allow up to 60 or 90 days. Check your policy's grace period terms for details on how long you have to make a late payment before your coverage lapses.

Your insurer is required to alert you when your premium is late and again if your policy lapses, so you should know relatively quickly if you miss a payment. Given the serious consequences, make sure you read all correspondence from your provider. A notice can easily slip through the cracks if you use autopay and you don't notice if your card expired or your payment failed.

Fortunately, if you miss a payment and pass away during the policy's grace period, the benefit will typically get paid to your beneficiaries, minus any missing payments and associated late fees.

How to Avoid a Life Insurance Policy Lapse

Between busy schedules and unexpected expenses, it's easy to miss a payment. In fact, AM Best reports the lapse rate for individual life insurance increased from 5.1% in 2023 to 7% in 2024.

Here are a few ways to keep your life insurance policy from lapsing:

• Enroll in autopay. Stay on top of your premium payments by enrolling in autopay through your insurance provider or using your financial institution's bill payment service. If these methods don't work for you, schedule your premium payments at the beginning of the month several days before the due date to ensure timely processing.
• Consider making annual payments. It might be easier to manage annual payments since you only have to remember one due date a year. It could also save you around 3% to 5% overall, though you may have to prepare for a larger payment than with monthly premiums. Consider setting up an automatic transfer to another savings account to be prepared when the time comes. That way, you can incorporate the transfers into your monthly budget.
• Talk to your insurance provider. If you're already behind on payments, reach out to your provider and ask about payment options that can help you get back on track. They may offer to modify the due date or break up the past-due premium payments into smaller chunks until you bring the account current without canceling your policy.
• Keep your contact information current. If you move or your contact information changes, update it in your online account or by calling customer service. Remember, your provider must let you know when your premiums are past due or your policy is about to lapse, so you want to make sure they can get into contact with you.

Tip: Past-due email alerts are often auto-generated, which can increase the likelihood of being filtered into your spam or junk folder. Add your insurance company's email address to your safe contact list so you don't miss an important notice.A car payment calculator can help you run the numbers to decide if refinancing your auto loan will save you money.

What to Do if Your Policy Lapses

If your policy is canceled for nonpayment, the first thing you should do is contact your insurance agent to find out how to reinstate it. It may be as simple as making premium payments to bring the policy current if not much time has passed since the policy lapsed.

Even if you've missed several payments, your term or permanent life insurance policy may be eligible for reinstatement. Most carriers allow you up to three to five years to bring your premium payments up to date, plus any applicable interest. You may need to undergo a medical examination to become active again, and your insurer might not approve the reinstatement if your health has changed since you first applied.

The Bottom Line

Your coverage may lapse if you stop paying life insurance premiums, but you may still have time to reinstate it. Take steps to bring your premiums current, and reach out to your insurance company if you need help, so that you avoid your life insurance policy being canceled for nonpayment.