Life Insurance Guide | Insurance Help Product Information | Arrears

All offices have procedures for policies that fall into arrears. When this happens, the office will write to the policyholder stating the amount of the arrears and point out the consequences of not payment.

If the policyholder pays the arrears within a certain time, the policy can continue, although most offices will impose a late payment charge if the amount or the duration of the arrears warrants it. This compensates the office for the interest lost by not having the premium to invest on the due date.

If the arrears are not paid, and the policy has no surrender value, it will lapse at the expiry of the days of grace and the office will cease to be on risk. The days of grace are usually 30, or perhaps 14 for monthly premiums.

If the policy has a surrender value then its non-forfeiture provisions will come into effect. These vary from office to office, but usually will mean that the policy is made paid up – i.e. is allowed to continue with a reduced sum assured or benefit.

Many offices have computerised their arrears procedures so that the computer sends out a reminder automatically once the policy is in arrears for a certain time. If a policy is mortgages the office will usually inform the mortgagee if premiums fall into arrears, so as to enable him to protect its interest.

Once a policy has lapsed due to non-payment of premiums, the office is off risk. The office may agree to reinstate the policy subject to payment of all the arrears, a late payment charge and a satisfactory declaration of health, but this is entirely at the discretion of the office involved. There may also be an increase in premium if a long period has elapsed since the policy expired.