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Default And Lapse In A Life Insurance Policy And How They Are Affected By The Grace Period

2010-05-16

Many people put off purchasing life insurance until the later stages of life. If you find yourself in a situation where family members are dependent of your income, taking out a life insurance policy may be a smart step in securing financial stability for your spouse and additional family members. When you acquire a life insurance policy you have endless options to choose from. Life insurance agents will have answers for any questions and concerns that you may have. As you create your life insurance policy, it is important that you make the correct decisions that will provide a plan that satisfies your needs not only for the time being but also for the future. After enrolling into a life insurance plan, you will begin to pay monthly premiums which will secure the benefits to your loved ones in case the unexpected happens.

As a consumer, you have the right to a cancel your policy for a full refund if you feel that you were pressured into buying a life insurance policy by a pushy salesman. To receive a complete refund you must act within a few days of purchasing the original policy. If for any reason you decide to cancel your policy at a later date, it gets a little more complicated and you will not get a refund of the premiums that you previously paid. To "default and lapse" on your life insurance policy you simply stop paying your premiums. Your life insurance company will use any money that you have accrued in your policy to cover the unpaid premiums every month until the money is depleted.

Once you default and lapse on your premiums for a one month period, your policy will lapse and will no longer be valid. At this point, most life insurance companies will give you a 31 day grace period to catch up on your payment and will reinstate your policy. If you fail to reinstate your policy, securing another life insurance policy in the future may become more difficult. Similar to a lender checking a credit score, a potential life insurance company has the right to look into your past to see if you have any previous lapsed policies. If you have several (or even one) lapsed policy on your record, they may either charge a higher interest rate or choose not to insure you at all.

Remember that if you inadvertently let a policy lapse (such as forgetting to pay a premium) it is not the end of the world, since you are given a brief grace period to get current on your payments. But it is important to know what you are getting into when sign a term life insurance contract.

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