Life Insurance Lapse and Reinstatement in California

A life insurance policy that lapses is not always gone, and California gives a policyholder more room here than most states do. The protections sit in two places: what has to happen before a policy can terminate, and what a carrier may require to put it back. The first is regulated. The second is largely the carrier’s to set.

How long is the grace period on a California life policy?

At least sixty days. Insurance Code section 10113.71 requires every life policy issued or delivered in California to contain a grace period of not less than sixty days from the premium due date. The policy stays in force through it.

Two details in that provision do real work. The sixty days do not run at the same time as the period already paid for, so they extend the coverage rather than overlap it. And where a death occurs during the grace period, the policy is in force. In the litigation over these sections the point was made that an insurer can account for the unpaid premium out of the death benefit, rather than the coverage simply being treated as ended.

Does the insurer have to warn you before a policy terminates?

Yes, and the notice is only effective if it is done properly.

A notice of pending lapse and termination for nonpayment is not effective unless the insurer mails it at least thirty days before the termination date. It has to go to the policy owner, to any designee named under section 10113.72, and to a known assignee or other person with an interest in the policy. Notice is to be given within thirty days after a premium is due and unpaid, by first class mail.

That is a requirement on the insurer rather than a promise about any particular file. Whether a notice in a specific case met the standard is a question for an attorney.

Who else can be told before your policy lapses?

This is the most useful thing in the whole subject and almost nobody uses it.

Section 10113.72 gives an applicant for an individual life policy the right to name at least one other person to receive notice of lapse or termination for nonpayment. The insurer has to provide the form, and the right to change that designation comes round annually.

The reason it matters is that lapses are rarely deliberate. A policy lapses because mail went to an old address, because a bank account changed, or because the person handling the household paperwork became unwell. A designee is a second pair of eyes on the one notice that matters. An adult child, a sibling, a trustee or an accountant will all do.

If you own a policy and have never named anyone, that is a short call to make.

Do these protections apply to an older policy?

Largely yes, and this surprised the industry.

Both sections took effect on 1 January 2013. Insurers argued for years that they applied only to policies issued after that date. In McHugh the California Supreme Court held otherwise, deciding that the sections apply to policies that were in force when they took effect, whatever their issue date, with a narrow exception.

The practical consequence for an older policy is that the sixty day grace period and the notice requirements are not limited to recent contracts. The court also made clear that insurers were not required to go back and reinstate policies already terminated.

What does a carrier require to reinstate a lapsed policy?

Here the statute steps back and the contract takes over, so this is the part where the answer is genuinely your policy’s rather than the state’s.

Most contracts allow reinstatement within a stated window after lapse, and that window differs between carriers. Read the reinstatement provision in the policy rather than assuming a standard period.

What is commonly required falls into three parts. A written application to reinstate. Evidence of insurability, meaning fresh answers about health and sometimes an examination. And payment of the overdue premium, frequently with interest, and on some contracts repayment of any loan taken against the policy.

The word to notice is evidence. Reinstatement is underwritten. A condition diagnosed since the policy lapsed is a condition the carrier can consider. That is why a lapse caused by an administrative slip is far easier to fix in the first weeks than in the second year.

Is the carrier obliged to reinstate?

No. A reinstatement application is a request, and the carrier decides it against its own underwriting.

That is worth saying plainly, because the language around reinstatement can make it sound automatic. It is not, and a policy that has been allowed to terminate has lost something that may not be recoverable at the same price or at all.

What does reinstatement do to the contestability clock?

It restarts a version of it, and this is the detail most likely to be missed.

Under Insurance Code section 10113.5, a reinstated policy may be contested on account of fraud or misrepresentation of facts material to the reinstatement. That runs for the same period following reinstatement as applied after original issue, on the same conditions.

So a policy that had passed its original two year window does not carry that protection forward untouched into the reinstated period. The answers given on the reinstatement application are themselves contestable, which is a reason to complete that form as carefully as the original. We set out how that window works in life insurance contestability in California.

What to do if a notice arrives

Act inside the grace period rather than after it. Paying within the sixty days keeps the policy in force and avoids the reinstatement question entirely, which is a materially better position than any reinstatement.

If the policy has already terminated, find the reinstatement provision and the deadline in it. Ask the carrier for the reinstatement requirements in writing. Work out what is owed, including interest and any loan. And be straightforward on the health questions, because that form carries its own contestable period.

Statutory provisions are amended from time to time and reinstatement terms differ between carriers. This describes the law as written at the date of publication and how these provisions are generally built. The current statutory text is published by the California Legislature, and your policy language governs.

Where to start

Two things are worth doing before any of this becomes urgent. Check whether a designee is named on your policy, and name one if not. Then check that the address and billing details on file are current.

We are insurance agents rather than attorneys. We can read the reinstatement provision with you, tell you what the carrier is likely to ask for, and help you assemble it. Whether a lapse notice was validly given, or a reinstatement wrongly refused, is a question for a lawyer. Call the agency at (818) 322-4744 or contact us.

Disclaimer

This article is provided by Schneiderman Insurance Agency for general informational purposes only. It is not legal, tax, financial, claims, or coverage advice. We are licensed insurance professionals, not attorneys, accountants, or financial advisors, and nothing here should be relied on as a substitute for advice from a qualified professional in those fields. This content is general in nature and is not a review of, or a recommendation for, any individual reader’s specific insurance needs, policies, or circumstances. Insurance coverage depends entirely on the specific terms, conditions, endorsements, exclusions, limits, underwriting eligibility, carrier, and facts of each situation, and the actual policy language always controls. We do not guarantee any coverage, pricing, eligibility, underwriting approval, or claim outcome. Reading this article does not create an agent-client relationship. To understand how these issues apply to your situation, please review your own policy and speak with a licensed insurance professional, and consult legal, tax, or financial advisors where appropriate.