What Happens If You Miss A Life Insurance Payment?
A life insurance plan calls for regular payments, either monthly or annually, depending on your contractual agreement. If you fail, you might lose your coverage along with all the premium payments you had made with it.
If you miss out on a premium payment, you are usually notified by the insurance company via e-mail, phone, or mail. Your insurance advisors may also step in to make sure the message reaches you.
But, also remember that missing out on a premium payment may or may not be a problem – it all depends on the type of life insurance you have.
Term Life Insurance
Each premium payment matters with a Term Life Insurance because you do not build any savings from which the life insurance company can pull its payment.
If you opt for annual payment by check, you will receive a bill every year. You may opt for monthly payments to make things easier, although it will cost you more.
In case you miss a premium, you will be notified.
Whole Life Insurance
You can opt for an automatic premium loan if your whole life insurance plan comes with a savings component. Your coverage continues as long as your whole life policy supports loans and loan interest. Once that is exhausted, you will be notified.
Note: Since the savings of a whole life insurance plan build up over time, you are typically entitled to a cash surrender value if you cancel. So yes, you can cash out on a whole life insurance plan.
Universal Life Insurance
Universal Life Insurance acts like a bank account.
You deposit premiums and investment returns every month, and insurance and administration charges get deducted. If you pay more than the minimum premium amount, your investments grow.
In such a case, you are allowed to skip a premium without penalty. Once the savings are exhausted, you will be notified.
Grace Period in Premium Payment
Most life insurance companies offer a grace period for premium payment. The grace period typically varies based on the life insurance company and type of the insurance.
The period may be as little as 1 day to as long as 30 days.
However, due to the current COVID-19 pandemic and the ongoing financial difficulties, many insurance companies have extended their grace periods to 90 days.
After the grace period, your policy can be cancelled by the insurance company for non-payment.
Reinstatement of a Lapsed Policy
If your life insurance policy lapses, the reinstatement is usually possible after the grace period ends, typically within a few years. You will have to pay the missing premiums along with the interest.
You should also compare the costs of getting a new coverage before opting for reinstatement because life insurance is more expensive as you age.
The reinstatement of a lapsed policy is similar to applying for a new coverage. It all starts with an application, including a questionnaire for health. Do not lie. If the company finds out, they can make your policy null and void for material misrepresentation.
The company may also ask for other medical records like blood tests, urine tests, and maybe even a complete medical checkup. Realize that they still have the power to deny your coverage, not reinstating your policy.
If you health are having additional health issues, your premiums may go up, but not because of your age. For policy reinstatement, the premium age is considered the same as that of the original policy date. This is still a benefit to you in comparison to getting a new policy because rates can go up to around 6% every year.
Communication is always the key. Do not hide away and think the insurance company would not come after for missing out on a payment. The truth is they make a lot of money from premium lapses, so they are more than happy to cancel.
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