Missed a life insurance payment? Grace periods, lapse and reinstatement in Canada

If you miss a life insurance premium in Canada, the policy does not end immediately. There is a grace period of at least 30 days after the due date (many contracts say 31) during which coverage continues; if you die in that period, the insurer pays the claim minus the overdue premium. If the premium is still unpaid when the grace period ends, a term policy lapses. A permanent policy with cash value may instead keep itself going through an automatic premium loan or switch to a non-forfeiture option. A lapsed policy can usually be reinstated within two years if you pay the overdue premiums with interest and provide satisfactory evidence of insurability; reinstatement starts a new two-year contestable period for the statements you make. Act quickly: reinstating is usually cheaper than buying a new policy at an older age, and impossible if your health has changed.

This guide is part of the overview of common life and disability insurance mistakes.

The timeline

Stage	What happens	What to do
Premium due date	Payment fails or is missed	Check your bank account and the insurer's notice
Grace period (at least 30 days)	Coverage continues; insurer usually sends a reminder	Pay in full before it ends
End of grace period	Term policy lapses; permanent policy may use cash value	Ask the insurer what has happened, in writing
Up to 2 years after lapse	Reinstatement possible with arrears, interest and evidence of insurability	Apply for reinstatement
After 2 years	Usually no right to reinstate	Apply for a new policy

Permanent policies: options before lapse

Whole life and universal life policies with cash value have built-in options:

Automatic premium loan: the insurer lends the premium from the cash value. Interest accrues and the loan reduces the death benefit until repaid.
Reduced paid-up insurance: you stop paying and keep a smaller death benefit for life.
Extended term insurance: the cash value buys term coverage for the full amount for a limited period.
Universal life: the policy continues as long as the account value covers the monthly cost of insurance, then lapses after notice. Low account values in later years are a common surprise.

Ask for an in-force illustration before deciding; it shows how long the policy will last under each option.

Worked example: reinstatement versus new policy

Illustrative figures. Hélène, 47, had a $300,000 Term 20 bought at 39 for $32 a month. While she was caring for a parent, her bank account changed and three payments failed. The policy lapsed.

Reinstatement, 4 months after lapse: arrears of 4 x $32 = $128 plus interest at the rate set by the insurer, say $5, total about $133, plus a health questionnaire. Her premium stays at $32 for the remaining 12 years.
New policy at 47: a new Term 20 for $300,000 might be quoted at $60 a month (illustrative). Over 12 years the extra cost would be (60 - 32) x 144 = $4,032, and the new policy would include a new two-year contestable period from the start.

Reinstatement is clearly better if her health allows. If she has developed a condition since 39, the insurer can refuse reinstatement, and the new policy might also be rated or declined.

Quebec

Under the Civil Code of Québec, a premium not paid on the due date can be paid within a grace period of 30 days, during which the insurance remains in force; if the insured dies during that time, the insurer deducts the unpaid premium from the benefit. A policy that has lapsed for non-payment can be reinstated within two years, with evidence that the insured still meets the conditions for insurance and payment of the arrears with interest. Policies may grant more generous terms.

Disability and illness: avoiding lapse when you are sick

The worst time for a policy to lapse is during an illness, because you probably cannot buy a new one.

Waiver of premium. Many life and disability policies include a benefit that waives premiums if you become disabled, after a waiting period, often 4 or 6 months. Claim it promptly; premiums paid during the waiting period may be refunded once approved.
Pay from an account someone else can manage. Give a spouse or trusted person access, or sign a power of attorney for property (a protection mandate in Quebec covers incapacity once homologated).
Keep your address and email current with the insurer, especially after moving.
Group life during leave. Group coverage may continue during STD or LTD, sometimes with premiums waived. If you leave the job, the conversion right to an individual policy usually has a short deadline, often about 31 days.

Checklist when a premium fails

Call the insurer the day you notice; ask the exact end date of the grace period.
Pay the overdue amount by a method that posts quickly.
Ask for written confirmation that the policy is in force.
If lapsed, request reinstatement forms and ask what evidence is required.
Answer the reinstatement health questions as carefully as the original application; see contestability and misrepresentation.
If refused, look at conversion rights on other policies, group coverage, or simplified issue products.

Frequently asked questions

Will the insurer warn me before the policy lapses?

Insurers normally send notice of the unpaid premium and the lapse. Do not rely on it: notices go to the address on file.

Can I get a refund of premiums after a term policy lapses?

No, term policies have no cash value. Premiums paid bought coverage for the period they covered.

If I die during the grace period, will my family be paid?

Yes, generally, minus the overdue premium.

Can I reinstate after two years?

Some insurers allow it at their discretion, but there is usually no right to it. Expect to apply as a new client.

Sources

Canadian Life and Health Insurance Association — keeping your policy in force
LégisQuébec — Civil Code of Québec, payment of premiums and reinstatement
Financial Consumer Agency of Canada — managing insurance payments
OmbudService for Life and Health Insurance — if you dispute a lapse
Related: beneficiary designations