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Unpaid life insurance still valid, lawyers warn
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Unpaid life insurance still valid, lawyers warn

Thanks to changes in legislation, life insurance policies with unpaid premiums may still be valid, according to financial services law firm, The Fold Legal. 

In a recent blog, lawyers Jaime Lumsden Kelly and Peter Vrliji said changes to the Insurance Contracts Act 1984 now allow life insurance policies to remain on foot even if the premium is unpaid. 

“Under old legislation, life insurance contracts with unpaid premiums could be cancelled under common law, however amendments to the Insurance Contracts Act mean that life policies can only be cancelled for fraud,” they said.

“There is no right to cancel a life insurance policy on the basis of non-payment of a premium.”

The lawyers added that the only way to terminate life insurance contracts with unpaid premiums is via automatic cessation clauses.

“In order to ‘cancel’ a life insurance policy, insurers would need to ensure the cover automatically ends if the insured doesn’t pay their premium. Because this is technically not a cancellation, it doesn’t fall under the Insurance Contract Act,”  they wrote.


“Automatic cessation clauses need to be very carefully drafted though, and the whole policy must be reviewed thoroughly to ensure the clause has the effect that the cover is ‘void’, not ‘voidable’.

“This is critical, because ‘voidable’ would mean the insurer has the option to cancel the policy, and exercising such an option amounts to a cancellation which brings the insurer back within the ambit of the Insurance Contracts Act.”

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