We know that sometimes streamlining your payments can be burdensome due to financial hardship or unexpected commitments, especially when you have multiple payments lined up, including life insurance premiums and other investments.
However, life insurance is essential to your financial planning and provides security to your family in case of an untimely demise, therefore, it cannot be ignored. So, you must be aware of the outcomes of missing your payment for life insurance for better planning.
Through this article, we shall learn what you can do if you cannot pay your life insurance premiums and the possible effects of missing one or more payments.
Essentials of Life Insurance Premium Payment
Life insurance premium payments are made to your insurance provider to keep your policy active in an agreed format. Therefore there are some essential factors one must know:
- The premium payment may have additional processing fees, especially for frequent payments such as monthly or quarterly.
- When you make your premium payment in the semi-annual or annual format, you can avoid any additional cost as it requires significant & infrequent lump-sum payments.
- If your life insurance policy includes employer & employee relations, premium payments are likely deducted from your paycheck. And to keep your policy active in case you leave your job, you would need to transform your plan to a whole-life policy and make payments straight to the insurance company.
Missing life insurance premium payments can have serious consequences, especially when it comes to your financial planning or retirement planning.
Can I Stop Paying Life Insurance Premiums?
Yes, but there are some consequences that depends on the types of life insurance policies you have and the terms and conditions arranged by your insurance provider:
Term life insurance policy
For a term Life insurance policy, there shall be a coverage lapse for nonpayment.
Permanent Life Insurance Payment
In the case of a permanent life insurance policy, there shall be no automatic lapse for a missed payment, as you may get various options which are as follows-
- Cash-out Policy
The cash-out policy may include cash out of your policy with a reduced death benefit, or your policy may get converted to a term policy if you stop your premium payments.
Further, in case of cash out, you shall be disbursed with cash savings, which you can use as you see fit, although the only drawback shall be that you'll no longer have life insurance coverage.
- Non-Forfeiture
The non-forfeiture is an option that some insurance companies allow where you can stop paying premiums altogether. The drawback is that you will get a death benefit of a lower amount in exchange.
- Conversion to extended term
The other option your insurance provider may agree upon is to transform over to an extended-term option with a death benefit which is equal to the value of cash savings already built up in the policy.
- Grace Period
Some insurance companies also offer a 30-day grace period before cancelling your policy. Life insurance plans with a grace period option allow policyholders extra time to make payments without causing their coverage to lapse.
Conclusion
One must understand the options available for non-payment of premiums, based on policy type with the terms and conditions put forth by the insurance provider. The general options provided are listed above, which includes cash-out policies, non-forfeiture options, conversion to extended-term policies, and grace periods to avoid lapses in coverage.
You can consult your insurance provider and explore more options available, if any, to ensure that your policy remains active to provide security to your family.
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