Chicago woman, 82, has $100,000 life insurance canceled after missing $112 payment — what you need to know when reinstating a lapsed policy

“What about all the money that I spent on it?” Janowiak said in an interview with CBS News Chicago about the situation.

The cancellation occurred in April following a notice from Janowiak’s insurance company, Transamerica, that she had failed to pay the $56 a month premium increase for two months, amounting to a $112 lapsed payment.

Mark Friedlander of the Insurance Information Institute told Moneywise in an email that most life insurance policies include a 30- to 60-day grace period for a lapse in which the coverage remains active, but that the policy “will be terminated if payment has not been made by the end of the grace period.” Janowiak’s family claimed she never received a warning of the lapse sent by Transamerica via mail.

Instead, her son, Greg Janowiak, told CBS News that his mother paid her life insurance policy “religiously every single month for 20-plus years.” Still, Transamerica cancelled the policy and, being 82 with “more health problems now than she ever had before,” as her son added, Janowiak became essentially uninsurable.

Reinstating your life insurance after a lapse

Ultimately, after CBS News got involved, Transamerica did reinstate Janowiak’s policy, but added a $1,581 charge.

In a statement to Moneywise, Transamerica said privacy reasons prevent them from discussing “the specifics of individual policyowner matters” but that once they became aware of Janowiak’s concern, “we reached out to her directly and resolved the matter in a way that allowed her to maintain her coverage.”

They added that, when it comes to the $1,581 Janowiak owes, “the policyowner must come current on the unpaid premium payments” when policies are reinstated. “For that reason, there is a payment required to reinstate lapsed policies. That payment is not a fee. It is the amount of money required to restore the policy.”

The issue, however, highlights the importance of staying on top of changes in your life insurance policy.

That’s because if it lapses and you miss the grace period to reactivate it, you could be left without a policy, or have to reapply altogether. As such, it’s imperative that you contact your insurer as soon as you discover a lapse.

“If the grace period has expired and your policy has been terminated, you can usually apply for reinstatement within a set timeframe, which can range from 1-5 years after the policy lapsed,” Friedlander wrote to Moneywise. However, he noted, “this varies by insurer and state regulations.”

He added that “reinstating your policy lets you keep your original rates and terms,” though that can involve paying all missed premiums and accumulated interest. And you may also have to take part in a medical exam.

“If your health has declined during the lapse period,” he said, “reinstatement may be denied by your insurer.”

Erin Ardleigh, founder of Dynama Insurance, told Forbes Advisor that “it’s really important to be honest with [your insurer]” about your health because insurance companies “don’t have to pay a claim if they can prove there’s a material misrepresentation you’ve made.”

Western & Southern Financial Group notes that, if possible, you’re usually better off reinstating an old policy than starting a new one after a lapse because “reinstatement lets you keep the original terms, rates, and benefits” while avoiding premium hikes.

But as Ardleigh told Forbes Advisor, a change in health could impact the premium cost, which she said can rise 6% for each year of the lapse.

Ultimately, there’s no better way to avoid the headache of a life insurance policy lapse than by taking steps to ensure it never happens to you.

How to prevent a life insurance lapse

Many insurance experts advise that one of the best ways to make sure your life insurance never lapses is to set up direct payments from your account. However, Janowiak did just that for decades and still ended up with a lapsed policy so, while it’s a good start, it’s not a foolproof plan.