Steps to Take if You Can't Pay Your Life Insurance Premium
Everyone faces emergencies sometimes. Maybe a large home repair, job loss or other unexpected expense has made you miss a life insurance payment. The consequences of skipping a life insurance payment depend on the policy type, coverage, and terms and conditions. Here's what you can do if you can't pay your premiums.
Non-Payment of Term Life Insurance
When you purchased your term life insurance policy, you chose a payment frequency. Miss a payment, and you normally have a grace period of 30 days during which the death benefit will be paid to your beneficiary if you were to die. Pay the missed premium during the grace period, and your policy will be reinstated.
If you don't pay within the grace period, your policy will be cancelled. Call the company if you pay bi-annually or annually and request a refund on the unused premiums which you already paid.
You can usually ask your company to reinstate the policy within five years of it being cancelled. Typically, you'll need to complete the application again, undergo another paramedical exam and prove that you're in good health. Premiums that went unpaid since the policy lapsed will also need to be paid before the coverage becomes effective.
Purchase a new policy. Even though you left one insurance policy lapse, shop around for another policy that may be cheaper.
Non-Payment of Permanent Life Insurance
If you can't pay the premium on your permanent life insurance policy, you could cash out the policy and collect any accrued cash value. In this case, you would pay income tax on the payout if it's more than the premiums you paid. Your policy also becomes void.
Another option is to reduce the death benefit and lose any cash savings. You'll still be covered by your policy despite its reduced value.
Your insurance agent can help you convert your permanent policy into an extended term policy. The time period for this option depends
on how much savings your permanent policy has accrued.
Finally, ask if your lapsed policy can be reinstated. Because every company is different, check your policy for details on whether this is an option for you or not.
When you find yourself falling behind on life insurance payments, contact your insurance agent immediately. Share your situation and ask for options. By making sure you're protected by a life insurance policy, you have peace of mind and care for your loved ones.