What are my options other than letting my life insurance policy lapse?
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Asked April 1, 2013
The best advice is not to let your policy lapse, because a lapsed policy voids any money you have built up in the policy. What many people do not know is that some policies, usually whole life insurance, can actually pay your premiums for you after a few years, eliminating the worry of a lapsed life insurance policy altogether.
Check your policy, or call your insurer, and ask them if your policy has enough accrued cash value to pay its own premiums. The way this works, the accrued value, the amount you have paid in minus the costs associated with maintaining the policy, can be channeled back into the policy so that the premiums are automatically paid when they are due. The policy usually takes several years to begin accruing enough value for this, but once you have had the policy that long, you won't have to worry about it if your finances become stretched.
Most life insurance policies will give you a grace period of between 30 and 90 days to bring your policy up to current. That means that you can miss a payment without the policy lapsing, but you may not be able to miss more than one. As soon as you see that you are not going to be able to make a premium payment, contact the company and ask them for suggestions on how to avoid causing a lapse in your policy.
Short of making a payment plan or having a enough accrued cash value, there is not much you can do to stop a policy from lapsing if you cannot make the premiums. However, some policies also include hardship provisions where the policy premiums can be waived for a short period of time. This is not a common procedure, so check your policy carefully to find out if this option is available to you.
Finally, if you have enough value in the policy, you can borrow against the accrued value and use the money you borrow to pay premiums. Borrowing against the cash value of a policy will not affect the face value, which is the amount you bought the policy for. Accrued value in a life insurance policy is the amount, the policy contains above the expected cash value in a whole life insurance policy. Since the accrued cash value is your money, you are able to borrow against it without a credit check or having to put up collateral to cover the loan.
Answered April 1, 2013 by Anonymous