A grieving widow was recently awarded $2 million after her husband’s life insurance policy was wrongfully declared lapsed by the insurer. The company claimed the policy had terminated due to nonpayment of a premium while the insured—her husband—was on his deathbed. The truth? He had paid over $350,000 in premiums over the life of the policy, averaging about $4,000 per month. His goal was simple: to provide for his aging wife and their blind and disabled son. Instead, she was left without the payout she desperately needed—and even lost her home as a result.
The insurer was notified in August that the policyholder, a physician, was critically ill. A December premium notice was reportedly mailed out, but the widow never received it. After her husband passed in January, she quickly realized the oversight and submitted two payments. The insurer initially returned them, claiming the policy was paid in full—only to later reject the payments again and deny the claim, citing the lapse.
Even though the insurance company had been informed of the insured’s deteriorating health months prior, it made no effort to reach out to the family to ensure the policy remained active. This lack of compassion and common sense underscores a troubling truth: many insurers use lapses due to illness or incapacitation as a strategy to avoid large payouts.
Fortunately, with help from a life insurance attorney, this widow was able to recover the full $2 million. And based on the insurer’s egregious conduct, additional compensation and interest may be warranted to deter this kind of behavior in the future.
How Life Insurance Policies Lapse—and Why It Happens to the Dying
When someone is gravely ill, managing paperwork and bills often falls by the wayside. Insurance companies are well aware of this. And while many policies offer a grace period, they don’t always act in good faith when someone is incapacitated.
This isn't just an unfortunate oversight—it’s a pattern. Life insurers know that policyholders often invest substantial sums into their policies only to miss one premium near the end of life. This gives insurers an opportunity to declare the policy lapsed and deny the payout. It’s not rare—it’s a systemic issue. And it’s one of the more shameful ways insurance companies continue to profit year after year.
Policyholders should consider adding a waiver of premium rider for disability or critical illness, which can help prevent lapses due to serious medical events. Unfortunately, many people aren’t made aware of these options when purchasing their policy.
What Rules Do Life Insurance Companies Have to Follow for Policy Lapses?
If you’ve had a claim denied due to nonpayment, it’s critical to understand the rules insurers are required to follow. These protections exist to give families a chance to correct missed payments before coverage is lost.
Grace Period
Most policies provide a grace period of 30–31 days after a missed premium. During this window, coverage remains active, and the policyholder can catch up without penalty.Notice of Lapse
Insurers must notify the policyholder that the policy is in danger of terminating. Failure to send proper notice can invalidate the lapse and make the claim payable.Reinstatement Options
Many policies allow reinstatement after a lapse if the policyholder pays back the premiums and possibly provides evidence of insurability. Some states require insurers to honor reinstatement for a set period.Surrender Value or Non-Forfeiture Options
Permanent policies may retain some cash value or offer reduced coverage even after a lapse. These "non-forfeiture" clauses must be communicated clearly to the policyholder.Consumer Protection Laws
Regulations vary by state, but many jurisdictions have specific protections in place for late payments, especially when the policyholder is elderly, disabled, or terminally ill.
The National Association of Insurance Commissioners (NAIC) stresses that beneficiaries must receive clear, written reasons for any denial. Similarly, the Insurance Information Institute notes that missed payments due to medical conditions are among the leading causes of unfair denials. If the policy is employer-sponsored, ERISA offers additional federal protections.
Life Insurance Companies Profit from Lapsed Policies
While it’s heartbreaking, it’s important to understand the financial motivations behind these denials. Life insurers profit more when they collect years of premiums but never have to pay out. Declaring policies lapsed just before a death is not accidental—it’s a calculated way to reduce liability.
In this case, the insurer had every opportunity to ensure the policyholder’s intent—to protect his family—was fulfilled. Instead, they chose not to notify the family, declined timely payments, and denied the claim.
Our legal team stepped in and held the insurer accountable. Not only did we secure the full $2 million death benefit, but we’re also pursuing additional damages to help this widow rebuild her life and to discourage future misconduct.
Don’t Give Up on a Lapsed Life Insurance Policy
If your life insurance claim was denied due to a missed premium, do not assume the denial is final. Just like policyholders must follow rules to keep a policy in force, insurance companies have their own legal obligations.
An experienced life insurance attorney can investigate whether proper notice was given, whether a grace period was violated, or whether reinstatement options were wrongfully denied. Our firm has helped countless families recover benefits from lapsed policies—and we’re ready to help you too.
Call today for a free consultation. You’ve invested in life insurance to protect your family. Don’t let a technicality—or bad faith—stand in the way of the money you’re owed.