Life insurance can provide a sense of financial security for families, offering a safety net in times of loss. However, in New Jersey, if a life insurance policy lapses, it can lead to serious consequences for the policyholder and their beneficiaries. Life insurance lapse happens when the payments, also known as premiums, are not made on time. Without active coverage, families can lose the benefits they relied on, leaving them without crucial support when it’s most needed. Understanding what happens when a life insurance policy lapses can help individuals avoid these potential setbacks and better protect their families’ futures. At, Trief & Olk, we are here to guide you through the legal process and help you navigate the complexities of your case.
What Does It Mean When Life Insurance Lapses?
When a life insurance policy is set up, it usually involves a plan to pay regular premiums, which keeps the policy active. This ensures that if the policyholder passes away, their beneficiaries will receive the payout. However, if the premium payments stop, the policy can become inactive. This is known as a lapse in coverage. In other words, the protection the policy once offered is no longer there. Life insurance companies generally provide a grace period, which is a short amount of time after a missed payment, allowing the policyholder to catch up on their premiums and avoid a lapse. However, if the grace period ends without payment, the policy officially lapses, and the insurance coverage stops.
Why Do Life Insurance Policies Lapse?
Life insurance lapses can happen for several reasons, and often, these are due to unexpected life changes. People may face financial hardships, such as job loss, which makes it difficult to keep up with payments. Sometimes, policyholders simply forget to pay, or they may not realize their payment was missed. Other times, individuals believe they no longer need the coverage and stop paying without considering future needs. In many cases, a lapse is unintentional, but the result is the same: loss of coverage that may be hard to regain.
The Consequences of a Life Insurance Lapse
The main consequence of a lapsed life insurance policy is the loss of the death benefit. For families relying on this benefit to cover expenses such as funeral costs, mortgage payments, or ongoing bills, the absence of these funds can be a significant burden. Additionally, once the policy has lapsed, the policyholder may find it difficult or more expensive to get new coverage, especially if they are older or have developed health conditions. This lack of access to affordable insurance can leave families with limited financial options and added stress in difficult times.
Another major consequence is the potential loss of any cash value that may have been accumulated in a permanent life insurance policy. Unlike term life insurance, which offers coverage for a set period, permanent life insurance builds cash value over time. If the policy lapses, any accumulated value could be lost or reduced by fees, meaning the policyholder does not benefit from the savings they may have built up over the years. This can lead to financial setbacks for individuals who were counting on using this cash value in their later years.
Impact on Beneficiaries
When a life insurance policy lapses, the people who are often affected the most are the beneficiaries. They may be family members, dependents, or others who would have received the death benefit if the policyholder passed away while the policy was active. Beneficiaries may be counting on these funds to cover living expenses or plan for the future, and a policy lapse can leave them in a vulnerable financial position. This impact can be particularly harsh for young families, retirees, or people with significant debts. For these groups, the loss of life insurance benefits can mean financial insecurity or a drastic change in lifestyle.
Additionally, beneficiaries might be unaware of a lapsed policy until they try to make a claim. Discovering that the policy has lapsed can be both a financial and emotional shock, adding to the grief they may already be experiencing. For this reason, it is essential for policyholders to communicate with their beneficiaries and ensure that payments are up-to-date, keeping the coverage intact.
How to Reinstate a Lapsed Life Insurance Policy
In some cases, it is possible to reinstate a lapsed life insurance policy, but this often requires meeting certain conditions. Many insurance companies allow policyholders to reinstate their coverage within a specified period after a lapse, typically between 30 days and a few months. Reinstating a policy usually involves paying any overdue premiums along with possible fees. The policyholder may also need to provide proof of insurability, which could include a medical examination, especially if a significant amount of time has passed since the policy lapsed.
It is important to remember that reinstating a policy is not always guaranteed. Insurers may deny reinstatement if they believe the policyholder’s health has changed significantly or if the policyholder does not meet certain requirements. In these cases, the individual may need to apply for a new life insurance policy, which can come with higher premiums, especially if the policyholder is older or has health conditions. For this reason, staying current on premium payments is essential to avoid the hassle and expense of reinstatement.
We contacted Trief & Olk to help us with a life insurance issue and Shelly Friedland was the attorney assigned to our case. Before Shelly took our case she explained to us that the likelihood of our success without going to court was possible but not likely. Unfortunately we did not get the outcome we had hoped for but it was our decision to not move forward and have our case litigated. Shelly is very knowledgeable and was very straight-forward in her assessment of our case as we moved forward. She was very patient and thorough in answering our questions. She always responded in a timely manner and listened to our concerns. We would certainly recommend Shelly and would use her firm again in the future.” - John Ramig If there is any possibility of winning your life insurance case – this is the place to do it for you. They are efficient, honest and will achieve the best possible outcome. Shelly Friedland worked on my case where a life insurance policy had lapsed and was even a few days beyond the grace period. Farmers had rejected my claim twice and was unwilling to take a second look. Shelly was able to get them to pay the entire claim without going to court, and the full amount was deposited in my account within a couple months. Highest recommendation.” - Kathleen Brown Trief & Olk is a superior law firm. Their attorneys and other legal professionals have a brilliant understanding of the law and the litigation process. They diligently perform their work in an efficient, strategic and cost-effective manner to ensure the best possible outcomes for their clients. - Christopher Hughes
Preventing Life Insurance Lapse
The best way to handle the potential consequences of a life insurance lapse is to prevent it from happening in the first place. Setting up automated payments can help policyholders ensure that premiums are paid on time without worrying about remembering each payment. Many life insurance companies offer options to pay monthly, quarterly, or annually, allowing flexibility for the policyholder to choose a schedule that fits their budget.
Regularly reviewing the policy and its terms is also a good practice. Life situations can change, and adjusting a policy to fit current needs can make it easier to keep up with premiums. For example, if a policyholder’s income has decreased, they may be able to reduce the coverage amount, which could lower the premium. Consulting with a legal professional or financial advisor can also be helpful in finding solutions that work for both the budget and coverage needs.
Understanding Legal Options When a Policy Lapses
For policyholders in New Jersey who are struggling to keep their life insurance active, there may be legal avenues available to help protect their rights. Life insurance companies are required to follow specific procedures when a policy lapses, including notifying the policyholder before the lapse occurs. If these notifications are not provided or if other regulations are not met, there may be grounds to challenge the lapse. In cases where a policyholder feels that their policy lapsed unfairly, consulting with a legal professional who understands life insurance regulations in New Jersey can be a wise choice.
20% The annual average number of life insurance claims denied. $50 Million The yearly average dollar amount of claims denied by life insurance companies. .2% The number of claims appealed annually by consumers.Life Insurance Denial Statistics
Legal professionals can assess whether the insurance company followed all required steps and help determine if there is an opportunity to reinstate the policy or pursue other remedies. While this does not guarantee that coverage will be restored, it can offer a path forward for individuals who need support in navigating complex life insurance issues.
Life insurance can be a valuable asset, but a lapsed policy can lead to considerable challenges for both the policyholder and their loved ones. Understanding the reasons for a lapse, the consequences, and ways to reinstate coverage can help individuals avoid common pitfalls. By staying informed and proactive, policyholders in New Jersey can ensure that their families remain protected and that their life insurance provides the security it was intended to offer.
For those who may already be dealing with a lapsed policy, knowing the legal options available and working with experienced professionals can make a difference. Trief & Olk is here to offer guidance and support to those navigating the complexities of life insurance. If you have questions about a lapsed policy or need assistance, reach out to Trief & Olk for the help you need in understanding and protecting your rights.