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3.9.5 Grace Period

The grace period is a stated period of time after the premium due date during which the policy remains in force even though the premium has not been paid. The grace period applies to premiums other than the initial premium.

The grace period provision allots a specifically designated amount of time in which the policyowner has to make the required premium payments after the stipulated due date. If the policyowner fails to make the premium payments, the insurance company will not immediately cancel the policy. Most every loan in the world permits a grace period. Most states make it mandatory that insurance companies contain a grace period clause in the policies they sell, allowing a specified period of time in which to pay the overdue premium. In life insurance policies for which the premiums are paid monthly, the grace period is one month, but no less than 30 days.

Florida law requires that an additional lapse notice be sent for individual life contracts that have been in force for at least one year and that cover persons 64 years of age or older. Insurers are required to issue a notice of possible lapse after the applicable statutory grace period has expired. That notice must allow at least 21 days beyond the grace period for payment of premiums before a policy may lapse because of nonpayment. If the policy provides a grace period of more than 51 days, the lapse notice must be mailed at least 21 days before expiration of the grace period provided in the policy. Insurers are required to provide notice of the right to designate the secondary addressee in policy applications and the lapse notice must be sent to the secondary addressee if such an addressee has been designated in the policy.*

*Note that the above requirements regarding the additional lapse notice do not apply to contracts where premiums are payable monthly or more frequently and are regularly collected by a licensed agent or those paid by credit card or any preauthorized check processing or automatic debit service of a financial institution.

As of January 1, 2009, Section 627.94073, F.S. was amended to require an insurer that offers Long Term Care insurance to notify the policyholder at least annually of the right to designate a secondary addressee. The notice must also inform the policyholder to update any change made to the address of the secondary addressee. The notice of possible lapse in coverage due to nonpayment of premium must be given by USPS proof of mailing or certified or registered mail to the policyholder and the secondary designee at the address shown in the policy or the last known address provided to the insurer. If a policy is canceled due to nonpayment of premium, the policyholder is entitled to have the policy reinstated if specific conditions are met such as, continuous confinement in a hospital, skilled nursing facility, or assisted living facility for a period in excess of 60 days.

If the option for an automatic loan against cash value for defaulted premium payments is offered in the insurance application, such option is deemed elected unless rejected by the applicant. Instructions regarding these requirements should be provided by the appointing company.

The grace period is a big advantage to the policyowner. Should the insured die during the grace period, instead of denying the policy benefit due to late payments, the overdue premium payment is deducted from the policy proceeds.

Note: You are currently studying life insurance provisions. You will learn about the different grace period timeframes associated with health insurance in Lesson 17, Health Insurance Policy Provisions.