Know Your Rights
You Can Miss a Payment Without Losing Coverage
Most policies have a 31-day grace period after your premium’s due date. You can make a late payment without being charged interest and still be covered. If you die during the grace period, your beneficiary gets the death benefit minus the past due premium.
You Can Reinstate a Lapsed Policy
If you don’t pay your premium, your policy may lapse. To reinstate a lapsed policy, you may have to pay past due premium with interest. If you had a loan against your cash value when the policy lapsed, you may have to pay any unpaid interest and reinstate the loan. Most companies will reinstate a policy within a five-year period, but you may have to answer more health questions or take another medical exam.
You Can Sell Your Insurance Policy
A life insurance policy is personal property. You can convert your life insurance policy to cash or use some of the money that would have paid the death benefit. You can sell it just as you would your other property, but there are special rules. For more information go to the Life Settlements section of the Texas Department of Insurance (TDI)’s Life Insurance Guide page or talk to your agent, company, attorney, or financial advisor.
Insurance Companies Can’t Contest Paying Your Claim After 2 Years
Life insurance policies have a two-year contestable period. This means if you die within this period, the company may investigate the cause of death and review your application. If you die after two years of buying the policy, the company must pay the death benefit. They can’t deny the payment unless you don’t pay your premium, made a false statement, or withheld information.
Insurance Companies Must Pay Claims Promptly
Insurance companies must pay the beneficiary within two months of receiving proof of death and verifying the beneficiary. For an individual life policy, the company must also pay interest on a death benefit from the time the company receives the proof of loss statement to the time the company accepts the claim and offers to pay the death benefit.
You Can Get Your Premiums Refunded
You can have the premiums that you paid for life insurance refunded to you if you decide to cancel your policy, or if the company denies paying your death benefit.
- A life insurance company must refund your money if you change your mind and decide to cancel the policy within the “free-look period.” A free-look period gives you more time to look over your policy and decide if it is right for you. Most companies provide a free look for at least 10 to 20 days after buying the policy.
- If you paid premiums in advance and then cancel a policy, the life insurance company must refund the amount of pre-paid premium that was not applied to your coverage because it is “unearned premium.”
- The company will not refund your premiums if you outlive a term policy unless you bought a “return of premium” policy or rider.
- Your life insurance company must refund your premiums if it denies paying your claim during the two-year period when it can investigate the cause of death.
- The life insurance company will refund the premiums if it doesn’t pay the death benefit because of suicide.
Terms to Know
Beneficiary – beneficiaries are people you pick to get the money from the life insurance policy.
Cash Value – it is part of permanent life insurance that can be used for loans; a source of cash, or to pay policy premiums. The cash value usually builds up over time and can be used while you are still living.
Death Benefit – the amount paid to the beneficiary when the policy holder dies.
Estate – the money and property owned by a particular person, especially at death.
Guaranteed Renewable – a policy that must be renewed by the insurance company as long as you keep paying your premium.
Inforce Illustration – an inforce illustration is a picture of your insurance policy. It will show you exactly what has happened from the beginning of your policy to now, and what may happen in the future with current assumptions. Illustrations will usually show values using current assumptions and values using the guarantees provided under the policy.
Maturity Date – the date the life insurance policy is payable.
Policy – a contract between you and the insurance company. The policy tells you what’s covered and what the insurance company is required to pay.
Premium – the amount you pay an insurance company for your policy.