Keeping & Canceling Coverage

CARD T103

Lapse

Termination of coverage because required funding was not maintained after any applicable grace period. For example, a term policy ends when an overdue premium remains unpaid after the grace period.

How it works

Lapse ends coverage when required funding is not maintained after applicable grace and notice protections. A missed premium does not necessarily end coverage on the due date. Available cash value, an elected automatic premium loan, a no-lapse guarantee, or a nonforfeiture provision may affect the result. Each works only within its conditions. [1] [3] [5]

EXAMPLE

An owner misses a term premium. Coverage continues through the applicable grace period, but may end if the overdue premium remains unpaid after that period and required protections are satisfied.

Key distinction

Missed payment, grace period, lapse, and reinstatement are different stages.

Practice Lapse · 3 questions

CARD T104

Reinstatement

Restoring a lapsed policy after meeting the conditions required for restoration. For example, an insurer restores coverage after the owner meets the policy’s reinstatement requirements.

How it works

Reinstatement restores a lapsed policy under its provision rather than issuing an entirely new policy. Common requirements include applying within the allowed period, satisfactory evidence of insurability, overdue premiums with interest, and required treatment of policy debt. Three years is a common statutory period for individual life policies, with other periods possible. A policy fully surrendered for cash is generally not eligible under the ordinary reinstatement provision. Reinstatement may start a new contestability period for statements made in reinstatement. [2] [3] [4]

EXAMPLE

A policy permits reinstatement within three years. The owner applies after one year, provides required health evidence, and pays the required arrears and interest. Paying arrears alone is not necessarily sufficient.

Key distinction

Reinstatement may require new insurability evidence; guaranteed term renewal generally does not.

Practice Reinstatement · 3 questions

CARD T105

Grace Period

An interval after a premium due date when coverage continues while overdue payment can be made. It gives the policyowner additional time to pay before coverage lapses.

How it works

A grace period allows overdue premiums to be paid while coverage continues. Thirty or 31 days is common for individual life, but it is not a nationwide maximum: California generally requires at least 60 days for covered life policies. If a covered death occurs during grace, the insurer generally pays the benefit less any permitted overdue premium deduction. Grace is different from the free-look review period. [3] [4] [5]

EXAMPLE

Under a stated 31-day grace provision, a covered death occurs on day 20 after the premium due date. The policy is still in grace; the unpaid premium may be deducted under its terms.

Key distinction

Grace follows a missed premium. Free look follows delivery of a new policy.

Practice Grace Period · 3 questions

CARD T106

Free-Look Period

A limited opportunity to review and return a newly delivered policy for the refund required by applicable rules. It gives the buyer time to read the delivered policy and decide whether to keep it.

How it works

The free-look or right-to-examine period lets the owner review a newly delivered policy and return it for the required refund. A 10-day period is common, but states, products, replacement transactions, and buyer ages can change the period or refund calculation. Variable-policy refund rules can differ. Returning during free look is different from a later surrender subject to charges. [2] [11]

EXAMPLE

An owner receives a policy with a stated 10-day free look and returns it within the required period and procedure. The applicable free-look refund applies instead of treating it as an ordinary later surrender.

Key distinction

Delivery commonly starts the review window; the policy and required notices identify the controlling timing.

Practice Free-Look Period · 3 questions

Sources & further reading

Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.