Continuation of Coverage When Premium Is Not Paid by Premium Due Date
UPDATED: February 20, 2013
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An insurance policy lapse is a termination of coverage that occurs when a policyholder fails to make the required premium payments. After a policy lapses, no benefits are payable because the coverage has terminated. Sometimes, however, there are circumstances when, even though you are late or delinquent on the payment of premium for your individual health insurance policy, your coverage may still be extended. We will discuss these situations so that you know and understand your rights.
Grace period: The first circumstance is the application of the grace period provision of the policy.
Grace Period: Unless at least thirty-one (31) days prior to a Renewal Premium due date We have mailed to You written notice of Our intention not to renew this Policy pursuant to the Termination of Coverage provision of this Policy, a grace period of thirty-one (31) days from such due date is given for the late payment of the Renewal Premium due. If You make payment of the required Renewal Premium during said grace period, then this Policy will remain in force for Benefit claims arising during said grace period. However, if the Company has received notification of Your intention to cancel any Insured’s coverage under this Policy, there is no grace period for the late payment of any Renewal Premium that would otherwise have been due for such Insured but for such cancellation.
This sample provision allows for coverage to continue for 31 days after the due date of the Renewal Premium. If a covered loss occurs during the grace period, the insurance company is liable for the claim. However, even though it doesn’t say it in this provision, the amount of overdue premium, or perhaps a pro rata portion of it, may be deducted from the benefits paid. Note that the grace period never applies to the initial premium payment.
If a policyholder pays a premium within the grace period, the payment is not considered to be late. A late payment is one that is made after the grace period has expired. Most insurers accept premium payments postmarked during the grace period even though the payments do not arrive until the grace period has expired.
There are other situations when your individual health insurance policy coverage may be continued when you have not paid the Renewal Premium by the premium due date or before the grace period expires.
Statutory requirement for premium renewal notices. In a few jurisdictions, state laws specify that an insurance company cannot lapse a policy for nonpayment of premium unless the insurance company has first sent the policyholder a renewal notice for the policy. A renewal notice is a document specifying the date when the coverage under the policy will terminate unless the next required premium is paid. In states where this law applies, if the insurance company does not send a renewal notice by the end of the grace period, the insurance company is not allowed to lapse the policy for some specified (in the law) period of time, such as six months or one year after the end of the grace period. Moreover, the insurance company is liable for a covered loss that occurs during that period. This law usually only applies when premium is paid semi-annually or annually.
When this law applies, the burden of proof is on the insurance company to show that it sent a premium renewal notice to the policyholder before the grace period expired. In other words, if you say that you did not receive the notice, then the insurance company is required to provide some kind of evidence that it did provide you with the notice. If they cannot provide convincing evidence to that effect, it is presumed that they did not provide the notice. An insurance company can usually satisfy this burden of proof by showing that other policyholders who had a premium due on the same date received their premium renewal notices. Check with your agent or attorney to see if the law requiring a renewal notice applies in your state.
Actions or inactions by the agent. Another situation when your individual health insurance policy coverage may be continued when you have not paid the Renewal Premium by the premium due date or before the grace period expires involves actions or inactions by the agent. Courts have held that, under certain circumstances, an insurance company might have contributed to a policy lapse through the actions or inactions of the agent. Suppose, for example, that an agent has made a practice of reminding you near the end of the grace period to submit the required premium, but then stops doing so and you do not submit the premium in a timely manner. If a claim is submitted, the insurance company should consider whether the actions of the agent contributed to the policy lapse. You may be able to show that you relied on the pattern established by the agent. In such a case, a court is likely to prevent the insurance company from denying policy coverage because the agent’s actions contributed to your failure to pay policy premiums.
Insurance company makes a practice of accepting late payments. One additional situation exists where coverage under the individual health insurance policy may be continued beyond the renewal premium due date even though the premium is not paid by that date. This situation can occur when it is the usual practice of the insurance company to accept late premium payments. An insurance company may be required to pay benefits under an individual health insurance policy for which premiums were paid after the expiration of the grace period if the insurance company makes a practice of accepting late premium payments. Regularly accepting late payments may have the effect of extending the grace period by creating a reasonable expectation by you that the insurance company will accept a late premium. Regularly accepting late payments can legally prevent the insurance company from denying benefits for claims arising during the extended period.
Note that if an insurance company only occasionally accepts late premium payments, but does not establish a practice of regularly doing so, a court may not hold the insurance company liable for benefits because the insurance company’s occasional actions do not constitute a pattern that you have relied on.
Summary. As you can see, there are numerous situations when coverage may be extended beyond the actual premium due date for the renewal premium on an individual health insurance policy. The first, the grace period provision is a certainty. That provision is required by law in every state, so you know you have an additional 31 days beyond the actual renewal premium due date to pay the premium.
The others are more iffy. Some states may require a premium renewal notice be given by the insurance company and, if that is not done as required, extended insurance coverage may be created. The actions and practices of the agent and the insurance company may also create the opportunity for extended insurance coverage when it would otherwise seem that your policy might have lapsed. But both of these situations are dependent on an assessment of reasonable expectation. In other words, it is a judgment decision dependent on the specific facts of each situation. Your safest bet is to make sure you pay the premium before the grace period expires.
*Wording may vary from contract to contract and from state to state.