Lapse Due to Missed Premium Payments – New York

Life insurance denials can occur when the policyholder has not timely made premium payments for the policy. These are referred to as “lapse” cases. The Law Offices of Eric Dinnocenzo are attorneys who have successfully litigated New York life insurance lapsed premium cases.

What is a grace period?

Under New York life insurance laws, a policy cannot be cancelled immediately after a payment is late. Specifically, a grace period of 31 days after the due date is provided for policies with a fixed premium schedule (i.e. a term life policy) and 61 days for life insurance policies that have a cash value (i.e. a universal life policy).

The grace period is mandated by New York Insurance Law § 3203. Accordingly, New York life insurance policies typically contain this grace period in their written terms.

When does the insurance company have to mail a premium notice?

The life insurance company should provide sufficient notice so that you can send the premium in a timely manner.

For a policy with a fixed premium schedule, the notice must be mailed between 15 and 45 days in advance of the premium due date.

For a cash value policy, the notice must be mailed within 30 days after the cash value is insufficient to keep the policy in force.

If a policy lapsed before the insured died, can the beneficiary still collect the death benefit?

Yes, depending on the facts. Sometimes, even when the policyholder has not made a timely premium payment, there still may be a right to collect the death benefit. New York Insurance Law § 3211 provides strict requirements for the mailing of premium notices. If these requirements are violated, the law treats the policy as remaining in force for the next calendar year which may encompass the date of death. Here are some common scenarios where a knowledgeable life insurance attorney can defeat a policy lapse.

Mailing of the notice: on some occasions, life insurance companies do not actually mail the premium notice to their customers. In that case, the missed payment is the fault of the insurance company. Insurance companies have the burden of proof to show that they timely mailed a premium notice to the insured and that it was mailed to the correct address. They must do this by showing actual proof of mailing or providing a detailed description of the mailing process from a knowledgeable individual.

Inadequate timing: if the insurance company does not mail the premium notice between 15 to 45 days in advance of the due date for a policy with a fixed premium schedule, or for cash value policies within 30 days after the policy balance is insufficient to keep the policy in force, the insured will be deprived of having a proper opportunity to pay it. Pursuant to Insurance Law § 3211, the failure to provide sufficient notice will render the premium notice invalid and the policy will remain in force.

Vague or unclear notice: Insurance Law § 3211 requires that the premium notice must adequately inform the insured of the date and amount due, and where payment should be sent. Importantly, too, it should clearly inform the insured that the policy will lapse if payment is not timely made. When premium notices are vague, unclear, or insufficient in this regard, a lapsed policy can be revived by the courts.

Irregular payment history: some people have a chronic history of making late payments. A life insurance company may forgive repeated late payments, simply because it wants to make a profit by receiving premiums from an insured who otherwise seems healthy and a low risk. However, when the insured suffers an untimely death, insurers will often for the first time strictly enforce payment due dates. A skilled New York life insurance lapse attorney can argue under the legal principles of waiver and estoppel that the premium due date should be relaxed in accord with the prior late payment history.

The Unfair Result of Lapsed Coverage

Insurance companies will not hesitate to terminate a life insurance policy due to a late or missed payment. In fact, doing so is part of their business model, because they are able to collect premiums from a customer for years and then terminate coverage with no responsibility to ever potentially pay a death benefit. It is a scenario that earns pure profit for the insurance company.

For the consumer, however, a lapsed policy can mean thousands of dollars that have been wasted, not to mention the loss of an important death benefit to provide for a loved one. The position taken by insurance companies in lapse cases is often unduly harsh. In other contexts, the penalty for a late payment is not nearly so severe: a mortgage company cannot foreclose your home nor can an auto loan company repossess your vehicle due to a single late payment.

Examples of court decisions where the Law Offices of Eric Dinnocenzo has successfully reversed lapsed insurance policies can be found here and here.

Eric Dinnocenzo has published a New York Law Journal article entitled Defenses to Life Insurance Lapses for Non-Payment of Premiums.

You can contact New York life insurance lapsed premium attorney Eric Dinnocenzo for a free consultation at (212) 933-1675.