by Guest » Wed Nov 25, 2009 09:37 am
Life insurance is a serious financial commitment. This is an investment that secures the future of your loved ones and hence you must take care to maintain a life insurance policy till the end. Failure to pay life insurance premiums will result in your policy getting cancelled or there might also be a lapse in your policy. This means that your family members will not get any money from your policy.
How important is paying for life insurance?
Life insurance is an important financial investment. After your death the money that you have saved in your life insurance policy would go to your loved ones. But because of your failure to pay life insurance premiums may spoil all chances of your family members to get the proceeds of your policy. You will not just lose the policy due to the failure, but also all the money that you have invested in the policy till date.
What to do if I miss a payment?
Once after your failure to pay life insurance premiums your policy provider will typically provide a grace period of 15 to 31 days. During this grace period you can pay the premium that you have missed without paying any interests. If your life insurance has any cash value then the company will automatically pay the overdue that you have by taking a loan against the cash value your policy has accrued. However, you will have to pay interests on such a kind of loan. However, your authorization will be required before the insurance company can borrow money against the cash value of your policy.
Would my failure to pay life insurance policy premiums (within due date) allow me to retain coverage? I'm currently going through a financial turmoil and not sure whether I'd be able to make it within time.
Posted: Sun Nov 29, 2009 09:55 am Post Subject: I am a Life Insurance Expert!
Clive
There is both good and bad information being passed around in this thread. The bad information will kill you. The good information has varying degrees of accuracy.
First thing is, how old are you, what type of policy do you have now, and how long have you had it? If you have any type of [non-universal] cash value policy, it will have an "automatic premium loan" provision that allows the insurer to take money from the cash accumulation to pay the premium if it has not been paid by the end of the grace period (30-60+ days). The loan does not have to be repaid (although it should be), and the principal and accrued interest would be deducted from any death benefit payable.
UL policies do not need an automatic premium loan provision because the contract already states that all costs are taken from the cash accumulation every month, whether a premium is paid or not (if you pay a premium, it goes into the cash accumulation first, interest or gains may be added, and then the expenses are deducted). UL forms of insurance do not require a premium to ever be paid, except the first one to start the contract.
But all of that only works if you have any cash value, and it stops working when you don't have enough. At that point, you'd get a lapse notice from the insurer telling you that you have 30-36 days to pay a premium or your policy will lapse. To reinstate a lapsed policy, you have to prove insurability.
Which brings me to a serious point that some really BAD information has been given on: That if you lower you insurance amount to reduce the premium, "you can always increase your coverage again later." If an agent makes that remark, turn and run. It's not entirely true.
Some policies do include riders that will allow you to purchase more insurance at later ages without proof of insurability -- but most don't. You generally pay extra for the rider, whether you ever use it or not. And you'll pay an extra premium whenever you take the increase(s).
Insurance premiums don't affect your credit rating unless they prevent you from paying your other bills. Frequently dropping one policy in favor of another does not affect your insurability, but it could cause you to be rated substandard, resulting in a higher premium. Asking an insurer if you can convert to a less expensive form of insurance does not affect your insurability, but most policy conversions are costly because you're older and you pay a higher cost of insurance that often negates any saving from other economies.
If you're thinking of replacing your insurance with something less costly, you need to qualify for it first before you even begin to think about cancelling what you already have. If your existing insurance is a cash value policy of any type, and you've had it more than three or four years, you may be exposed to "surrender penalties" or other charges that wipe out any cash you were thinking of taking with you. Less time than that, and you probably have so little cash value that it just becomes an expensive lesson in "Life Insurance 101" to cancel and walk away empty handed.
Your lowest cost alternative will always be a form of straight term insurance. One-year term (ART) is the least expensive, but it costs more each year as you get older. Longer terms result in higher premiums. Always look for a true level-premium, level-term policy (death benefit and premium remain the same from year to year, until the renewal point) -- meaning that if it's a 20-year level-term policy, there will not be any change in the premium or death benefit during the first 20 years. But expect premiums to double or even triple at renewal. And term insurance has no cash value.
If you have more specific questions, please feel free to email me for 100% honest answers.
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