During the recent worldwide financial crisis, many people found themselves in a money crunch and looking for ways to trim monthly expenses. Since many individuals don’t believe they truly need life insurance, it was sometimes the first expense to be cut. After all, a piece of paper canâ€™t really shelter, feed, or clothe you, right? Everyone with financial dependents needs to carry life insurance to protect their family’s financial future, and there may be some steps you can take to prevent your policy from lapsing.
Term Life Insurance
If you fail to make the premium payments on a term life insurance policy, the coverage will lapse. Before this happens, you may be able to contact your insurance company and arrange to lower your death benefit and the amount of the premiums to keep the policy in force. When your financial problems ease and higher payments are affordable, you may be able to raise the death benefit to its previous level. Since companies want to retain your business, your carrier may be willing to work with you. If not, you can always compare life insurance quotes to find other providers who will (I personally found MyLifeInsuranceQuotes123.com to be a useful comparison site).
Whole Life Insurance
For most people, the best option for whole life insurance is to simply cash out the policy. There may be a monetary penalty for redeeming the cash value of the policy early, but you may lose more if you allow the policy to lapse. Whole life policies may not allow early withdrawal of cash value, and in this case, it is best to contact your insurance provider before the policy lapses to find out what options may be available when you are unable to pay the full amount of the monthly premium.
Universal Life Insurance
Since universal life insurance policies will deduct monthly premiums from the accrued cash value of the policy, being unable to make monthly payments for a short time may not be a problem with universal policies. The amount of time the policy will remain in force depends on the amount of cash value in the policy. It may be possible to lower the death benefit for the policy, which will also lower your minimum rates, so it won’t be necessary to use the money already invested in the policy.
Before buying term, whole or universal coverage, it is essential that consumers consider the type and amount of coverage they need, as well as the following factors:
- Some policies have a renewal clause, which means that if the policy lapses, there is a limited period of time during which the insured individual may renew it. This may require a new medical exam and higher premium rates.
- Cash value, which is redeemed before an insurance policy matures, is subject to income tax and must be reported.
- If your life insurance policy lapses, premiums on a new policy may be substantially higher, since rates are based on the age of the insured at the time the policy is bought. Instead of charging premiums based on your initial application, which may have been years ago, the company will treat you as a new policyholder and renew your policy given your current age, health, and risk profile.
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Life insurance is something everyone should have, and there are different types of life insurance to fulfill everyoneâ€™s needs and financial goals. But before buying coverage, consumers should always compare premiums, policies, and carriers to find the best coverage available.