Life Insurance Payment: Missed Opportunities And Next Steps

Life insurance is a crucial safeguard for you and your loved ones, offering financial protection in the form of a death benefit in the event of an unexpected tragedy. However, what happens when you miss a premium payment? Well, it depends on the type of policy and the terms and conditions set forth by the insurance provider. Most life insurance policies have a built-in safety net known as a grace period, which is typically around 30 days, during which your coverage continues and you can make your payment without penalty. If you don't make your payment within the grace period, your policy will likely lapse, and your coverage will end. However, even if your policy lapses, you may be able to reinstate it by fulfilling certain requirements set by your insurance company, such as filling out a reinstatement application and paying any missed premiums. To avoid missing payments, consider setting up automatic payments or reminders, or reducing your coverage.

Grace periods

During the grace period, your coverage will continue, and you will still be insured. If you die during the grace period, your beneficiary will still receive the death benefit, but the amount owed will be deducted from the payout.

If you don't make your payment before the grace period ends, your policy will lapse and your coverage will end. You may be able to have the policy reinstated, but you will likely have to go through medical exam underwriting and pay higher premiums.

Reinstating a lapsed policy

If your policy has lapsed, it is no longer active, and your loved ones will not receive a death benefit if you pass away. However, you may be able to reinstate your policy. Each company has different guidelines for reinstatement, but most will allow you to apply for reinstatement for up to five years from the end of the grace period.

To reinstate your policy, you will need to fulfil the company's specific requirements, which may include:

• A reinstatement application: All companies require you to complete a reinstatement application, similar to the initial application you filled out for the policy.
• Health statement: Most companies will want to assess if your health condition has changed since your initial application. However, if you apply for reinstatement within 30 days after the end of the grace period, many companies may waive this requirement and not require underwriting to reinstate the policy.
• New medical exam: If your health statement indicates significant changes, you might be asked to undergo a new medical exam.
• Pay outstanding premiums: If you are approved for reinstatement, you will be required to pay all overdue premiums from the end of the grace period. If your policy lapsed several years ago, this could be significant.

In some cases, if several years have passed since the policy lapsed, applying for a new policy altogether may be a better option than reinstatement.

Note that specific terms and requirements vary significantly between insurance companies and policy types. Not all insurers may offer the same grace period duration, reinstatement window, or requirements for health statements and medical exams.

Permanent vs term life insurance

When you miss a life insurance payment, the consequences depend on the type of insurance you have. Most policies have a grace period, usually 30 days, during which you can make the payment without losing coverage. If you die during the grace period, your beneficiary will still receive the death benefit, but the owed premium will be deducted. If you don't make the payment within the grace period, your policy will lapse and your coverage will end. However, you may be able to reinstate your policy, but it will likely involve a medical exam and higher premiums. Some permanent life insurance policies may not lapse if you miss a payment if there is sufficient cash value built up to cover the premiums.

Now, here is a detailed comparison of permanent vs term life insurance:

Permanent life insurance, as the name suggests, is designed to provide long-term or lifelong coverage. As long as you continue to pay the premiums, your coverage will remain in force. Permanent life insurance policies generally offer long-term death benefit protection and allow you to build cash value over time. This cash value can be accessed to pay for unexpected emergencies or significant expenses like college or retirement. The cash value also gives permanent life insurance a financial dimension, helping you build wealth. Permanent life insurance is generally more expensive than term life insurance, with premiums that are locked in and guaranteed not to increase. Whole life insurance is the most common type of permanent life insurance, with coverage lasting until later in life, often until the age of 90, 100, or 120.

On the other hand, term life insurance provides temporary protection for a set period, such as 10, 15, or 20 years. It is a simple and relatively inexpensive way to get life insurance coverage. Term life insurance policies do not accrue cash value and will lapse if premiums are not paid on time, even during the grace period. If you outlive the term of the policy, your beneficiaries will not receive any payout, and the policy will end. Term life insurance is ideal for those who only need coverage for a specific period, such as when raising children or paying off a mortgage. It is also a good option for those on a budget or those who want flexibility in their insurance coverage.

Non-forfeiture options

There are four non-forfeiture options that the owner of a permanent life insurance policy can choose from to access the accumulated cash value:

• Cash Surrender Value: The owner can terminate the policy and receive the remaining cash value within six months. The policy is then cancelled and cannot be reinstated.
• Reduced Coverage: The owner can opt for reduced coverage with a lower death benefit for the remaining term of the insurance.
• Use Cash Value to Pay Premiums: The owner can use the accumulated cash value to pay the remaining future premiums.
• Buy Extended Insurance: The owner can use the accumulated cash value to buy extended insurance with no additional premiums required.

If the policyholder does not choose any of the above options, the insurance company will usually have a default option, which is often the Extended Term Option.

How to avoid missing payments

How to avoid missing life insurance payments

Life insurance is a crucial financial safety net for your loved ones. To ensure your policy remains in good standing, it's essential to make regular premium payments. Here are some strategies to help you avoid missing life insurance payments:

Annual Payments:

Pay your premium annually. This approach reduces the risk of late payments as you only need to remember one payment date instead of up to 12 for monthly payments. While this option may not be feasible for everyone, it simplifies the payment process and minimizes the chances of missing a payment.

Electronic Funds Transfer (EFT):

Set up an Electronic Funds Transfer (EFT) or automatic payments through your bank. Automating the payment process ensures that your premiums are paid on time and helps you avoid the hassle of manual payments. Remember to keep sufficient funds in your account to avoid any payment failures.

Calendar Reminders:

Create calendar reminders for your life insurance payment due dates. You can use digital calendar apps or handwritten notes on a physical calendar. This simple yet effective method helps you stay organized and aware of upcoming payments.

Designate a Third Party:

Consider designating a trusted person to receive late payment notifications. Most insurance companies allow you to choose a second person to receive alerts. This way, you have an additional layer of security, and you can ensure that someone else is also keeping track of your payment due dates.

Choose a Suitable Payment Date:

When selecting your insurance policy, opt for a payment date that aligns with your salary or income schedule. For example, you can choose a date shortly after your salary is deposited into your account, ensuring that you have sufficient funds to cover the payment.

Text or Email Reminders:

Sign up for text or email reminders from your insurance provider. These notifications serve as helpful prompts to let you know when a payment is due, reducing the chances of missing a payment.

Shop Around for Affordable Rates:

If you're struggling to keep up with payments, consider shopping around for more affordable insurance rates. Compare different insurance providers and their monthly rates to find an option that better suits your budget. This way, you can reduce the financial strain and make payments more manageable.

Communicate with Your Insurer:

If you anticipate difficulty in making a payment, don't hesitate to contact your insurance broker or provider. Most insurers are willing to work with you and may offer alternative arrangements or grace periods to help you stay current on your payments. It's always best to be proactive and communicate any financial challenges you may be facing.

By implementing these strategies, you can effectively avoid missing life insurance payments and maintain the financial security that your loved ones depend on.

Frequently asked questions