Most insurance policies require that insurance premiums be paid either at the beginning of the policy period or at designated times during the policy period. If the insured misses a payment, the insurance policy usually lapses unless the insurer agrees to accept a late payment and continue the policy. However, in certain circumstances, the insurer's conduct can estop or prevent the insurer from claiming that the policy has lapsed for nonpayment of premium. The insurer, by its conduct, can also waive the right to claim that the policy is no longer in force due to the failure to pay the premiums.
Estoppel or Waiver
An insurer can lose its rights by its conduct. For example, a life insurer which allowed the insured to believe that he was covered up to time of his death can be estopped to claim, or be prevented from claiming, that the policy lapsed for nonpayment of premium.
The waiver of the right to assert the forfeiture of the policy for nonpayment of premiums happens when the insurer expressly or impliedly leads the insured to believe that the insurer has relinquished such rights. For example, if the insurer did not tell the insured that the insured's policy was forfeited for nonpayment until after a fatal accident occurred and the insurer's application for continuance of coverage indicated that coverage would continue, the insurer has waived its right to assert that the insured's policy was forfeited.
The right to enforce a forfeiture of a policy for nonpayment of premiums is not waived by the mere silence or inaction of the insurer. For instance, if an insurer failed to mention to a former insured that her policy had lapsed when the former insured asked for coverage on a different car, the insurer is not estopped to deny the existence of the policy.
An insurer that accepted a payment and deposited the check without following its normal review process and that clearly knew that the policy had lapsed when the payment was received has waived the right to claim forfeiture of the policy due to nonpayment.
An insurer, by prior acceptance of late payments and earlier reinstatements, does not waive its right to declare a forfeiture of the policy for a new missed payment.
If an insurer has been authorized to withdraw premiums from the insured's bank account and there are insufficient funds in the account, the insurer's subsequent notice of insufficient funds does not waive the insurer's right to forfeiture of the policy.
An insurer's acceptance of the premium constitutes a waiver of the right to forfeit the policy on the ground that a prior month's premium was not paid where the insurer deposited the check knowing of the dishonor of the check tendered for the previous month's payment.
Questions for Your Attorney
- If I fail to make a premium payment on an insurance policy, does the policy lapse?
- Does an insurer always have the right to assert the forfeiture of an insurance policy on the basis of nonpayment of premium?
- Is my insurance policy still in effect if my insurer accepts a monthly premium payment after my previous month's payment check was returned for insufficient funds?