Keep Your Business Protected Through a Missed Premium

A grace period is extra time after a premium due date to pay the premium. The policy stays in force during that time. Most life insurance policies include one, and the contract states how long it lasts.

Florida law sets a floor. Every insurance contract must give at least 30 days to pay any premium after the first, under § 627.453. The insurer may charge interest on the late premium, but the interest cannot be more than 8 percent per year.

The due date and the end of the grace period are two different dates. Track both. The due date is when the premium is owed. The grace period end is the last day the policy stays in force for that premium without lapsing. The grace period is a term of the policy. It is not a separate account, and it does not add time beyond what the contract says.

How the Grace Period Works on Key Person Life Insurance

On a key person life insurance grace period, the business usually tracks the deadline. The business often owns the policy, pays the premiums and receives the death benefit. That means the company handles the notices and the due dates, not the key employee.

Under Fla. Stat. § 627.404, a business entity has an insurable interest in a key employee’s life if written consent is obtained from that key employee before the insurance is purchased. Other insurable-interest bases listed in § 627.404(2)(b) have their own requirements. The consent must come before the insurance is bought, under § 627.404. The same section says the insurable interest need not exist after coverage starts. So the consent is a setup step. It does not renew with each premium.

Term and whole life key person policies can handle premium timing differently. Check which type you hold. Coverage during the grace period follows the policy contract. The Insurance Information Institute explains that key person life insurance helps a business recover financial losses caused by the death or disability of a key employee. Our key person life insurance overview covers how the coverage fits into a business plan.

What Happens If the Premium Is Not Paid by the End of the Grace Period

If the premium is still unpaid when the grace period ends, the policy can lapse under its terms. When it lapses, coverage ends. A lapsed term policy pays no death benefit. A whole life policy may have cash value, and the contract explains what happens to that value.

The grace period rule also covers a claim made during the grace window. If the insured dies before the overdue premium is paid, the unpaid premium with interest not in excess of 8 percent per year may be deducted from the settlement. The statute allows the insurer to take that deduction, per § 627.453. That is a rule to know, not a reason to skip a payment.

A lapse can affect more than the policy itself. Key person coverage often supports a plan for losing a key employee. Buy-sell funding may depend on the policy staying in force. Many people treat the premium notice as the deadline. The contract controls the rule, so read it closely. Ask the insurer or your licensed agent what applies to your specific contract.

Reinstating a Key Person Policy After a Lapse

Many policies allow reinstatement within a period stated in the contract. Reinstatement usually means paying the overdue premiums, often with the interest the contract specifies. The timing and the conditions come from the policy and the insurer.

Reinstatement may also require evidence of insurability. That can mean updated health information about the insured person. Approval is not automatic. A missed payment handled early may carry different requirements than one handled late. Approval depends on the insurer and the facts of the policy, so ask about it early rather than assume.

Practical Steps for Tracking Premiums on a Key Person Policy

Start with a calendar. Record each premium due date and each grace period end date. Put both in the business’s accounting system and assign one person to own the deadline.

Keep premium notices and payment confirmations with the policy file. If the business has a buy-sell agreement funded by the policy, keep that agreement with it. Coordinate premium payment with the bank account and the cash flow plan. A single account change can cause a missed payment.

Tax treatment needs a careful look. Under 26 U.S.C. § 264(a)(1), no deduction is allowed for premiums on any life insurance policy if the taxpayer is directly or indirectly a beneficiary under the policy. That can apply to key person premiums a business pays for its own benefit. Confirm how the rule applies to your policy with your tax adviser.

Why a Coverage Review Helps When a Payment Is Missed or Close to Due

A coverage review is our first meeting on your policy. We go through the due dates, the grace period, the lapse terms and the options the contract provides.

Insurance is offered by Nischay Rawal, a licensed insurance agent. This work is separate from the firm’s accounting practice. Florida law requires agents to make clear that they act as insurance agents with regard to insurance products and identified insurers, under § 626.9531. Florida also requires agents to be licensed and appointed, under § 626.112. Fla. Stat. § 626.112 reads: “(1)(a) No person may be, act as, or advertise or hold himself or herself out to be an insurance agent, insurance adjuster, or customer representative unless he or she is currently licensed by the department and appointed by an appropriate appointing entity or person.” We confirm fee terms before any coverage review begins.

Talk Through Your Key Person Policy With Our Team

If a premium is due soon, or a payment on a policy protecting your business was missed, you don’t have to work out the deadline alone. Our team at NR CPAs & Business Advisors can talk it through with you. Reach out through our contact page to set up a coverage review with Nischay Rawal.