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A few states impose an obligation on the insurer to send premium notices to policyowners in that state. In these states, if an insurer has failed to send the required notice, the policyowner has an additional period of time to pay the premium (as much as 6 months) before the insurer may lapse the policy. During this time, the statutes require the insurer to keep the policy in force.
There is considerable variety in the types of notice statutes, but they generally require that the notice must
Most insurers have established a custom and practice of sending premium notices to their policyowners (even in those states where it is not required by statute). If an insurer ends this practice without notice to the policyowners, a majority of the states will not permit the insurer to lapse a policy for nonpayment of the premiums until after the policyowner has had a chance to adjust to the new practice. If, however, the insurer ends the practice of sending premium notices only after it has informed all policyowners in advance, it will not be precluded from lapsing a policy for nonpayment of premiums after giving the notice.
A few insurers provide in their insurance contracts or other documents that they will send premium notices to their policyowners. If so, they are obligated to give such notice and may not lapse a policy for failure to pay premiums if they have not given the required notice. The following is an example of such a notice for a flexible premium adjustable life policy:
The first day of the grace period is called the date of default. We will send a notice to your last known address, or to the person named by you to receive this notice, not later than the date of default. The notice will state the due date and the amount of premium due to keep the policy in force.
An insurance company�s dealings with a particular policyowner may create an express or implied agreement between the two that the insurer will send a premium notice to that policyowner or will not lapse the policy until after it has sent that policyowner a notice that the premium is unpaid after the due date. If the policyowner can establish the existence of such an express or implied agreement and that he or she relied upon it, the insurer will be estopped from lapsing the policy until after such notice has been given. However, a policyowner cannot be required to pay a premium on time if he or she does not know the amount that is payable to the insurer. This would be the case for policies where dividends are being used to reduce the premium or for graduated premium policies, to cite two examples.
To avoid lapses insurance companies will accept a late payment of renewal premiums for a certain number of days after the premium is due. This is known as a grace period. Such a provision is generally required by the various state insurance codes, and as a practical matter it is included in most insurance contracts. There is no such thing as a grace period for the initial premium. If the initial premium is not paid on time, the contract does not exist. Three typical grace period provisions are as follows:
There is a grace period of 31 days for you to pay each premium after the first. Insurance will continue during the grace period.
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While your policy is in full force, there is a 31-day grace period for the payment of the renewal premium. This means a renewal premium not paid by its due date may be paid in the next 31 days. During the grace period, the policy will stay in full force. If the policy renewal premium is not paid by the end of the grace period, your policy lapses and is no longer in full force as of the due date.
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We grant 31 days of grace for paying each premium except the first one. If a premium has not been paid by its due date, the contract will stay in force during its days of grace. If a premium has not been paid when its days of grace are over, the contract will end and have no value, except as we state under Contract Value Options.
Payment of premiums during the grace period can usually be made at any time up until midnight of the 31st day of the grace period. If the 31st day is a non- business day, it is the normal practice to extend the grace period to the next business day.
Frequently, insurers will grant an additional period of time for payment of premiums after the grace period has expired. Such an offer is an extremely valuable benefit to the policyowner because the offer is usually not contingent on the insured�s providing new evidence of insurability. Because of the risk of adverse selection, granting an extension of time to pay premiums is an entirely discretionary matter with the insurance company. Nevertheless, insurers generally prefer to grant extensions rather than suffer a policy lapse.
Life insurance contracts and applications do not contain a provision granting such an extension of time. In fact, that this possibility exists is not even referred to by insurers. As a result, the policyowner does not have a contractual right to the extension or even an expectation that he or she might receive such an offer. Insurers want to avoid the possibility that a policyowner will be given an expectation that an extension once granted will always be granted because this may appear to give the policyowner a right to the extension. When an extension is granted and the insurer waives the right to demand new evidence of insurability, the offer will usually advise the policyowner specifically that the waiver being granted at this time does not apply to any future premium.
Typically, a late remittance offer imposes these conditions on the policyowner:
When the insurer elects to grant an extension, the extension period granted is commonly 2 weeks from the end of the grace period.
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