Court: Failure to Make Policy Payments Justifies Termination

By Don R. Sampen, published, Chicago Daily Law Bulletin, March 10, 2026

The 7th U.S. Circuit Court of Appeals recently considered what constitutes a “premium” in a life insurance policy and ruled that the policyholder’s late payment of the premium justified cancellation of the policy.

The case is Dahleh v. Minnesota Life Insurance Co., 164 F.4th 946 (Jan. 20). The policyholder, Fayez Dahleh, was represented by HeilizerLaw of Chicago. Hinshaw & Culbertson LLP of Chicago represented the insurer, Minnesota Life.

In 2012 Gilda Perlas purchased a flexible life insurance policy from Minnesota Life having an annual planned premium of $60,000. The policy combined pure insurance protection with investment features. It allowed the policyholder to vary the amount or timing of premium payments, such that various investment accounts maintained as part of the policy could be used to make payment.

Thus, if the policyholder decided not to make the annual premium payment, Minnesota Life could use the accumulated value in the accounts to make the policy’s required monthly policy charges. Those charges covered the administrative expenses and other costs needed to keep the policy in force. The company would simply deduct the monthly charges from the accounts.

If the value was insufficient to make the monthly payment, the policyholder would be given a 61-day grace period to make the required payment with interest. That payment needed to include the amounts payable for the two-month grace period, for a total of three months.

Perlas paid the annual planned premium for the first two years, then made no premium payments for the next three years, and also took out a $73,000 loan against the policy, all of which significantly reduced the accumulated value in the accounts.

In 2019 she assigned the policy to the plaintiff, Dahleh, who was her creditor. He made no annual premium payments but paid the monthly administrative costs for about two years, although he did so late and just before the grace period ended.

In early 2022, however, Dahleh mailed a check that Minnesota Life did not receive before the payment deadline, and the insurer terminated the policy. At that time the death benefit under the policy was worth about $700,000, and Minnesota Life informed Dahleh that the policy could not be reinstated.

He then brought this lawsuit claiming that Minnesota Life had not provided him sufficient time to make payment under 215 ILCS 5/234 of the Illinois Insurance Code. That section requires an insurer to give a policyholder written notice of the premium due within certain time parameters, which, if the insurer has not done, requires a six-month grace period to cure the default. An exception from the statute, however, applies to policies where premiums are payable monthly or at shorter intervals.

The district court granted Minnesota Life’s motion for summary judgment based on its finding that the company’s payment notice complied with six-month grace period requirement in section 234. Dahleh brought this appeal.

Analysis

In an opinion by Judge David F. Hamilton, the 7th Circuit affirmed but on slightly different grounds. He initially addressed Minnesota Life’s argument that Perlas’s decision to change her annual planned premium payment to zero made section 234 of the Insurance Code inapplicable. Hamilton disagreed, finding that the Illinois legislature did not intend to exempt flexible life insurance policies from that section.

Rather, Hamilton took the position that the required monthly charges functioned as premiums because they were necessary to keep the policy in force. Hence, for Hamilton, the question became not whether Minnesota Life complied with the notice and grace period requirements of section 234, but whether the monthly payments fell within that section’s exception for premiums payable on a monthly basis. He found that they did.

Dahleh contended, however, that his use of Minnesota Life’s 61-day grace period process, which effectively enabled him to pay the monthly charge once every three months, made the premium charge a quarterly payment rather than a monthly one, such that the exception would not apply.

Again, Hamilton disagreed. He observed that the grace periods did not show that the premiums were payable quarterly but were the consequence of Dahleh’s choice to keep insufficient funds in the accounts to cover the required charges on their due dates. The required charges were still payable monthly.

The court held that Minnesota Life was not required to provide statutory notice before terminating the policy based on the exception in section 234 for premiums payable on a monthly basis. It affirmed the decision of the district court on that basis.

Key Point

Monthly payments under a life insurance policy may constitute “premiums” for purposes of 215 ILCS 5/234, pertaining to necessary notice for termination, even when not designated as premiums if the payments are required to keep the policy in effect.