Will life insurance pay if you die during a grace period? It depends.

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Many companies, like mortgagors, credit card issuers, and student loan providers, have offered customers grace payment periods or deferments to alleviate some of the financial burden of the coronavirus. Likewise, most life insurance providers extended their grace payment periods in response to the pandemic. 

As weeks have turned into months of social distancing and quarantine, whether these extended grace payment periods will continue might be a concern for those experiencing financial hardship. If you’re not current on payments and you die, will your beneficiaries still get your payout?

Will life insurance pay if you die during a grace period?

“Your grace period — the amount of time you have to make a payment after the due date and bring your life insurance policy back to good standing — is usually 30 days, but it depends on your policy and insurance provider,” according to Trustage.

Like most people, I re-evaluated my monthly budget when the pandemic began. I stopped automatic payments. If grace payments or deferments were offered, I took advantage so I could have more cash on hand. One month, I forgot to schedule bill payments.

The bill that worried me was my term life insurance payment. I thought, no problem, they said there was an extended grace payment period due to coronavirus. I needed to contact my provider to make sure I still had coverage and what the new grace period meant. More importantly, if I died during the grace period before making my payment, would my beneficiaries get a payout? 

Grace payment periods are not new

Life insurance protects your loved ones if you die. There are two types of life insurance: whole life and term life. We typically recommend term life insurance. Our discussion focuses on term life insurance policies.

“If you don’t make it home and someone relies on your income to live, you need life insurance,” said Mark Williams.

Most life insurance providers already had a 30-day grace period that keeps your policy in force if you pay within the grace period noted Williams, CEO of Brokers International. For example, Williams said if your monthly premium is $75 month and you died within the grace period without making a payment, your beneficiary would still receive the payout less the $75 owed. So if you had a $1M policy, your beneficiaries get $1M minus $75.

If the grace payment period expires and you still have not paid, you risk your coverage lapsing and the possibility of having to reapply for coverage. If you died outside of the grace payment period and still did not pay, then you risk having no coverage at all. 

Pandemic grace period changes depends on your provider

Williams said due to COVID-19 some insurance companies have extended grace periods to 60 days. However, he recommended consumers ask their providers the following questions. 

  1. What is my normal grace period? The terms are in your policy, if offered by your provider, but you should ask when selecting coverage.
  2. How long do I have to make up a missed payment before I risk losing coverage? 
  3. What is the pandemic grace period? Confirm whether the provider will pay out if you die during the grace period.
  4. Can I reduce my benefit to lower my cost but keep my policy in force due to job loss or reduced salary? For example, if you already have a $1 million policy, can you reduce it to $750,000 to lower the monthly premium?
  5. In the future, can I bring it back to the level it was, or increase it further? In our example, that would mean restoring your adjusted $750,000 policy to $1 million. Williams notes this may require underwriting and a physical exam.

If you are unsure of the terms (fine print) in the policy you already have, contact your provider. If you are looking for a policy, do not be shy. Ask questions so that you know what you are getting. If your financial situation changes or the pandemic lingers, reach out to your life insurance provider to see what options are available. You never know until you ask. 

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

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