Could your life insurance lapse without you realizing it?

When was the last time you looked at your life insurance policy?

For many Canadians, life insurance is something they arrange during a major life event, like getting married, buying a home or starting a family. Once the coverage is in place and the premiums are set up for automatic withdrawal, it's easy to assume everything is taken care of.

And usually, that's exactly how it works. But what happens when a bank account changes, a payment is missed, or an aging parent begins having difficulty managing their finances? In some cases, a policy that's been in place for decades could lapse, leaving someone without the protection they thought they had.

The good news? There are practical steps you can take to help prevent that from happening.

How does a life insurance policy lapse?

A life insurance policy generally lapses when the coverage ends because the required premiums haven't been paid and the applicable grace period has expired.

It can happen for surprisingly ordinary reasons:

• You switch banks and forget to update your automatic payment information.
• A payment is declined because there aren't enough funds in the account.
• You move and miss an important notice from your insurance provider.
• You experience a period of financial difficulty and fall behind on payments.
• An aging parent begins struggling with bills or financial administration.
   

Some permanent life insurance policies have accumulated cash values or other provisions that may help keep coverage in place when a payment is missed. However, these arrangements depend on the policy and aren't something you should automatically count on.

The important thing to understand is that having a life insurance policy doesn't necessarily mean your coverage will remain active indefinitely without attention.

What happens if you miss a payment?

Missing one payment doesn't usually mean your coverage disappears immediately.

Most life insurance policies include a grace period, which gives you additional time to make an overdue payment before the policy lapses. In Ontario, the Insurance Act generally provides a minimum 30-day grace period for life insurance premiums after the first premium, subject to the applicable policy and statutory provisions.¹

But that doesn't mean you should wait to address a missed payment.

If you discover that a premium hasn't been paid, contact your insurer or insurance advisor promptly. They can help you understand the status of your policy, the amount owing and what needs to happen to keep your coverage active.

And if your policy has already lapsed? Don't assume all is lost.

Can a lapsed life insurance policy be reinstated?

Depending on the type of policy, how long it's been inactive and the insurer's requirements, you may be able to reinstate your coverage. That could involve paying overdue premiums, providing updated health information or meeting other conditions.

Here's where things can become more complicated:

If your health has changed since you originally purchased your policy, reinstatement may not be as straightforward as simply catching up on payments. And if you're older, purchasing a new policy could be more expensive or more difficult than it was when you first applied.

That's why maintaining existing coverage can be particularly important, especially for people who have held their policies for many years.

Before cancelling an existing policy or assuming a lapsed policy can be restored, reach out. We can help you understand your options.

An important conversation to have with aging parents

As our parents get older, many of us begin helping them manage different aspects of their lives, from medical appointments to household bills.

Insurance deserves a place in those conversations, too. A parent may have purchased life insurance decades ago, but do you know whether the policy is still active? Where the documents are kept, who the beneficiaries are, or how the premiums are being paid?

These aren't always easy conversations to start, particularly when a parent values their independence. But a little organization can make a big difference.

Consider asking a few simple questions:

• Do you have any existing life insurance policies?
• Are the premiums being paid automatically?
• Is your contact information up to date with the insurer?
• Do you know who to contact if you have a question about your coverage?
• Would it help to have someone you trust assist with organizing your insurance information?
   

With your parents’ permission, you may also be able to explore whether their insurance company offers additional notification arrangements or other administrative safeguards. The goal is to help them stay informed and in control of their coverage, while respecting their independence.

A little attention today can make a big difference tomorrow

One of the most common misconceptions about insurance is that once you've purchased a policy, there's nothing more you need to do.

But your circumstances change. Your finances change. And sometimes, even the small administrative details change. That's why we believe regular insurance reviews are so important.

We help clients understand the coverage they already have, identify potential gaps and determine whether their policies continue to meet their needs.

Sometimes, that means recommending changes. Other times, it simply means confirming that everything is working as intended.

If it's been a while since you reviewed your life insurance, or you're helping an aging parent organize their financial affairs, we're here to help.

Let's make sure the protection you've worked hard to put in place is still there when it's needed most.