Over the past months, the effects of COVID-19 and the economic recession have brought about unemployment and financial hardship for millions across the country. Due to this difficult situation, many families have had to seek out alternative forms of income or cut out certain expenses and services from their budget in order to get by. As life insurance is not an immediate need such as food or rent, it is often quick to be removed from the budget and there has been an increase in lapsed policies. With all of the uncertainty today, here are the essential things you should know about a life insurance lapse, the options you have when this occurs, and how you can financially prepare for and avoid this situation.
A lapse of coverage occurs when the recurring premium payment is missed or the cash value of the policy has been used up. This voids your protection and you will no longer receive the death benefit if something were to happen to you. While this does not immediately mean that your life insurance is dead due to the extra coverage given during the grace period before the lapse, it does mean that you risk not being able to cover the next payment and missing out on that protection and security. The beneficiaries of a life insurance policy are even more vulnerable and affected by a lapse. While every insurer is legally required to warn the policyholders of an upcoming lapse, there is no such obligation to inform the beneficiaries of such policies. For many, there is almost nothing that can be done if they were not made aware about the upcoming lapse, but in some special circumstances you may be able to take over the payment if the policyholder is unable to do so due to a debilitating condition. For those who have permanent or universal life insurance, overcoming this lapse is easier as the company may borrow or use any cash value associated with the policy to cover the missed payment. This is not an ideal situation for a continued lapse but it can provide a solution and allow you to keep your policy when you otherwise might not be able to. Term policies on the other hand, do not have this luxury and will expire when the grace period is exceeded if the situation is not rectified.
After your premium payment is missed, you enter into what is called the grace period. This period of time can vary but often lasts around 30 days during which you will still be covered fully in the case of your death. In any case, make sure to inquire about the grace period as some companies, however, have increased this period for their policyholders to 60 days or even more due to the physical and financial effects of the pandemic. While this eases the worry of immediately being unprotected, this time is meant to be an extension to allow you to make up for the skipped payment and keep your policy. If the payment is not made during the grace period, your policy will officially lapse and you will lose your coverage.
If you are concerned about your policy lapsing, here are some steps you can take before and after that happens in order to keep your coverage and stay protected.
If you would like to avoid the worst case scenario of giving up your life insurance policy, it is crucial to keep making the payments. If, however, you must miss a premium, take the time before and during your grace period to evaluate your expenses and budget so that you can make up the payment. The grace period extensions by some companies can give you additional time to come up with the funds or income necessary for holding on to your policy. Additionally, understanding the necessity of life insurance for your loved ones can help you take time to eliminate any nonessential expenses that might stand in the way of affording coverage. Although altering your spending these days may be difficult for some,
Once a life insurance policy is purchased, some people never take the time to look at the policy details again. However, policies are often adjusted for various reasons including paying off a mortgage or adding more children to the family. You may be able to decrease the amount of coverage or even remove riders from your policy which can reduce your premium rates. Whatever your specific needs are, it’s important to discuss these possible adjustments with your provider that can reduce the cost of your premiums.
If your life insurance does lapse, by accident or necessity, there are some options that may help you hang on to that life insurance policy for longer. Many companies give you the option to reinstate the policy after it has lapsed for even up to 5 years. While you may be without coverage for a time, it may be a valid option in order to save and financially prepare for these payments in the future. Reinstating the policy is often more expensive as you will need to make up for lost payments, and your coverage may be affected by any changes in health. You will also need to submit a reinstatement application, but because this process can vary by company, you should always consult with your provider about the steps you will need to take.
If reinstating your policy is not a viable option during your life insurance lapse, and you cannot afford to be unprotected, you may need to obtain a new life insurance plan. While this may mean that you will pay higher premiums due to your difference in age and health than when you first purchased life insurance, looking for a new policy can help you find one better suited to your current needs. If your financial situation makes it difficult to keep life insurance as part of your life, there is always tomorrow to make the decision for yourself and your family.
If you are concerned about missing a payment or having your life insurance policy lapse, here are a few extra things you can do to try to prepare for and prevent it from happening. First, make sure to set up online automatic billing. This way, you will be less likely to forget about payments and you may not have to think of them often. You may also want to consider the frequency of your payments. If paying monthly is too much of a concern, opt for paying annually or semi-annually instead. While this will cause each premium to increase, you will have more time in between each cycle to set aside money for the next payment. On the other hand, if you cannot afford a large upcoming annual payment, ask to switch to monthly payments for the time being to make the burden more bearable. Additionally, you can designate another person to receive notices about payments and lapses to provide further accountability and reminders if needed. There is also an option to purchase single premium life insurance which requires a one-time, up-front payment for lifelong coverage. Although these policies tend to be quite expensive especially as a single payment, they can eliminate the worry and risk of a lapse in the future. Finally, as you purchase a life insurance policy, consider adding a waiver of premium rider that waives the premium payments in the event that the policyholder becomes ill or loses the mental capacity to do so. This can be difficult to obtain but it may be worth looking into to avoid a lapse in this situation.
As you make difficult decisions for your family during these times of financial hardship, consider how they will benefit from the financial stability of life insurance if anything were to happen to you. Letting your life insurance lapse can leave your loved ones vulnerable in a time of need, but even through today’s economic crisis, you can ensure a financially secure future for them. For those who have not yet taken this step, you can choose from a variety of policies for term, permanent, and even no exam life insurance at LifeQuote where we are committed to helping you get the coverage that you need. For those who are financially struggling, see how affordable life insurance can be by checking out different sample rates and getting a free instant quote today.