Life Insurance Grace Period, Lapse, and Reinstatement: What Happens If You Miss a Payment

How the grace period works

Arizona requires a grace period “of thirty days, or, at the option of the insurer, of one month of not less than thirty days” for premiums after the first, during which “the policy shall continue in full force.” If a claim arises during the grace period, the overdue premium may be deducted from the proceeds (A.R.S. § 20-1203).

Worked example

Illustrative only: you have a $250,000 policy with a $150 monthly premium. You miss a payment, and the insured dies on day 20 of the grace period. Because the policy is still in force, the insurer pays the claim, minus the $150 overdue premium, so the beneficiary receives $249,850 (A.R.S. § 20-1203).

The first premium and policy types

• First premium: Arizona’s grace-period rule applies to premiums after the first; coverage generally doesn’t start until the first premium is paid.
• Universal life: the grace period is usually triggered when the cash value can’t cover monthly charges; read your policy for the exact rules.
• Group life: if coverage ends because you leave a job, ask about converting or porting it, since those windows are short.
• Other states: most states require a grace period of about a month; check your policy and your state’s rules.

What happens when a policy lapses

• Term life: coverage generally ends when the grace period passes without payment.
• Whole life: the policy may use nonforfeiture options such as automatic premium loans, reduced paid-up coverage, or extended term insurance instead of ending outright.
• Universal life: the policy can lapse when cash value can no longer cover the monthly charges; many insurers send a lapse notice first.

See cash value life insurance.

Reinstating a lapsed policy

In Arizona, a policy that lapsed for nonpayment can generally be reinstated “at any time within three years” of the default, unless it was surrendered for cash or any paid-up term coverage has expired. You’ll need to apply in writing, provide evidence of insurability satisfactory to the insurer, and pay overdue premiums and any policy debt, with interest of no more than 6% a year compounded annually (A.R.S. § 20-1213).

A reinstated policy may get a new contestability period for statements made on the reinstatement application. Reinstating can still cost less than buying a new policy at an older age.

What reinstatement can cost

Illustrative only: if a $150 monthly premium lapsed eight months ago, you’d generally owe about $1,200 in back premiums, plus interest of up to 6% a year in Arizona (A.R.S. § 20-1213), plus any loan balance. You’ll also need to show evidence of insurability. Compare that with the cost of a new policy at your current age and health.

How to avoid a lapse

• Set up automatic payments and keep your bank details current with the insurer.
• Name a third-party contact, if your insurer offers it, to get lapse notices for you.
• Review universal life statements yearly to make sure premiums keep the policy funded.
• Call your agent before the grace period ends if money is tight; lowering coverage may be better than losing it.

See how to switch insurance without a lapse.

Grace period FAQs

Related guides

• Cash value life insurance
• Contestability period
• How to switch insurance without a lapse
• Term life insurance
• Universal life insurance
• What happens when term life expires

Your next step

Tell us what happened with your policy, and a licensed agent will help you review your options.