New Washington State Law Enhances Life Insurance Policy Lapse Notifications
Washington state has introduced new requirements for insurers issuing individual life insurance policies, aiming to enhance notification procedures before coverage lapses due to unpaid premiums. Substitute House Bill 2428, which received unanimous support from the Washington State Legislature, mandates that life insurers notify both the policyholder and a designated third party at least 30 days before a policy lapses for nonpayment.
Amendments to RCW 48.23.030, which currently allows a grace period of at least 30 days for late premium payments, are at the core of this change. During this period, insurers may charge up to six percent interest annually while the policy remains active. Should a claim occur in this timeframe, insurers can deduct the overdue premium, including any interest, from the settlement.
The new legislation requires insurers to inform applicants, in writing, about their right to assign a third-party designee to receive lapse or termination notices at the time of policy application. This designation can be made at the application stage or later, while the policy is active, by providing the insurer with a written notice of the third party’s name and address.
Documentation and Exclusions
Further, life insurers must adequately document the dispatch of all notices, providing proof of delivery if requested. Acceptable forms include records of notices sent through first-class mail with an intelligent mail barcode, certified mail receipts, electronic read-receipts, or tracking confirmations from shipping services.
The law delineates responsibilities clearly, shielding third-party designees from any obligations or liabilities deriving from their designation. They are not required to inform anyone about received notices, pay overdue premiums, or take any actions regarding a policy lapse or cancellation. Insurers similarly face no liability toward third-party designees for potential notification failures.
Certain life insurance products are excluded from these requirements, such as group life insurance policies, policies with monthly or more frequent premium payments, and term life insurance policies of one year or less. The legislation is set to take effect for policies issued on or after January 1, 2027, and its provisions are prospective.