“Rest in peace with a $100,000 life insurance policy.” I came across this line on a popular news site. Good one!
I've seen families falling apart because their deceased loved one didn't have life insurance. The irony. Life insurance is a taboo topic, and I completely understand why. Having that dreaded conversation about life insurance can leave you with an eerie feeling. No one wants to think about losing a loved one.
But as Benjamin Franklin once said, “failing to plan is planning to fail.” And if you don’t stay current on your life insurance — or avoid purchasing a policy altogether — you could be setting your family up for failure in the finance department when your time is up.
What Happens If You Skip a Payment?
According to the Insurance Information Institute, your coverage will automatically lapse if you skip the premium payment on your term life insurance policy. But if it’s a permanent policy, you may be able to cash it out or take advantage of the non-forfeiture option (if applicable) to prevent the policy from vanishing into thin air.
Either way, you’ll be protected in the event of your untimely death.
Even better, your family won’t have to scramble to fulfill your final wishes and the myriad expenses that come with the territory.
Help! I Can’t Afford my Premiums!
Now, maybe you’re thinking to yourself, “I have a policy intact, but I’m experiencing a financial hardship and can no longer afford to make the premium payments.”
The good news is that you may have options to prevent your policy from lapsing.
Option 1: Waiver of Premium Rider
According to Investopedia, “A waiver of premium rider is a clause in an insurance policy that waives the policyholder's obligation to pay any further premiums should he become seriously ill or disabled, so the waiver of premium allows people to benefit from an insurance policy, even when they cannot work.”
So if you paid for this option when securing the policy, contact your provider promptly to learn more about the eligibility requirements. There may be a minimum waiting period or age requirement to exercise this option. But once you’ve met the minimum criteria, you can stop making payments and the policy will remain intact.
Option 2: Use Dividends to Pay the Premiums
If you have a permanent life insurance policy, review your policy documents to determine if your policy pays dividends. Once you’ve accumulated a certain sum, you may be able to apply a portion of the funds to offset premium payments. A word of caution: this is not a long-term solution, since you’re thwarting your earning potential each time the dividends are touched.
Option 3: Convert the Policy
Term policies are only valid for a specified period of time, but they’re much cheaper than their permanent counterparts in most instances. So if you’re struggling to make premium payments on a permanent policy, inquire about having it converted to a term product.
Option 4: Reduce the Value of the Policy
You may also be able to reduce the value of the policy or the amount of the death benefit. While you may not have the same level of coverage, it beats having nothing at all.
And if you want to take things a step further, consider dropping the riders when you reduce the value of the policy if you can afford to take the risk.
Option 5: Let It Go, Let It Go!
As a last resort, you can always cash out the policy and use the funds to open a new product elsewhere. Either way, you can actually rest in peace because your mind will be at ease, knowing that you’re covered.
A Final Thought
If you’ve done everything you can to keep your life insurance policy afloat and you’re running out of options, contact the insurance agent. They may be able to offer alternative courses of action that are exclusive to their organization, or else restructure your policy so that it’s more affordable and it better suits your needs.