People have life insurance for any number of different reasons. For many, it is to protect their loved ones in the case of the unexpected. This coverage can help to ensure that ongoing income will be replaced, large debts will be paid off, and/or that final expenses will be paid without a spouse or family having to worry about where to come up with the money.
But, even though this type of protection can provide you with peace of mind, it is important to be aware that there are certain reasons why a life insurance company could cancel a policy, ending the coverage altogether.
Why Insurers Could Cancel Life Insurance Coverage
When it comes to the cancellation of life insurance coverage, there are several reasons why an insurer could end a policy. Therefore, it is important to have a good understanding of these circumstances so as to ensure that coverage remains in force. Some of the primary reasons for an insurance carrier being able to cancel a policy can include the following:
Non-payment of Premium
As with most types of contracts, if a payment is not made, service can be cancelled. The same holds true for life insurance. Therefore, if the premium is not paid, the life insurance company can cancel a policy.
In most instances, the policy owner will have a grace period in which to pay the premium and keep the policy in force. The grace period is oftentimes at least 31 days. If the policy does lapse and it is a cash value policy, then the policyholder could end up losing a great deal of money – especially if the policy is in its early years. This is because, during the first few years of a permanent life insurance policy, the premium payments will typically go towards agent commissions, as well as other types of policy expenses.
Misstatement in the Application
An insurance company can also cancel a life insurance policy if it discovers a misstatement in the application – although there is a time limit on this. Within a life insurance policy, the “incontestable clause” will prevent the insurance carrier from canceling the policy – even for a material misrepresentation – but only after the policy has been in force for two years.
However, if it is discovered by the insurer within the first two years of the policy issue that the insured made a misstatement on the application for coverage, then the policy can be cancelled during this time.
A misstatement can refer to an applicant not disclosing that he or she has a certain type of illness, health condition (ex. someone who gets life insurance with multiple sclerosis , or life insurance with diabetes but does not state they do in the application) or lifestyle choice such as seeking life insurance coverage as a smoker and not relaying that information to the company. It may also refer to an applicant not disclosing on the application that they participate in certain types of risky activities such as skydiving or rock climbing – which can be viewed as high risk in the eyes of the insurer.
In some cases, if the insured dies within the incontestable period, and a misstatement is discovered, it is possible that the insurance company could deny payment of the death benefit claim to the policy’s beneficiary.
Expiration of Coverage
A term life insurance policy will also end when the coverage expires at the end of its time period or term. For example, term insurance is purchased for certain time periods such as ten years, 20 years, or 30 years. Should the insured live beyond that time frame, the coverage will expire.
End of Eligibility
For those who have life insurance through a group or association plan, coverage may be terminated when the individual is no longer considered to be an eligible member of the group. For example, this could occur when his or her employment ends. In this case, it is important to read the termination provision of the group life insurance certificate, as it may include information on how to extend these benefits.
Reinstatement of Coverage
If a life insurance policy lapses due to non-payment of the premium, there are some cases where it may be reinstated. Many life insurance policies include a reinstatement provision. This provision allows the policyholder to bring the policy back in force – provided that certain conditions are met.
How and Where to Obtain the Best Premium Quotes on Life Insurance Coverage
When shopping for the best premium quotes on life insurance coverage, typically the most practical route to go is to work with either a company or an agency that has access to more than just one life insurance company. The main reason behind this is the advantages you’ll have in seeing more quotes so you can pick the lowest rate and look at a lot of different plans!
The first step in getting a quote, or looking at coverage, is to complete the quote form the left. The results should give you a starting point on rates for the plan you want to look at, but as always if you’re wanting a more detailed rate along with more information you should reach out to us.
Lastly, if you’re Wanting to look at other forms of investments or insurance? Let us know! Our agents are versatile in their offerings and would love to show you how certain insurance products can help you create a better future for you and your loved ones.