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What if I can't pay my Life Insurance premium, what should I do?

Hey, it happens. Unexpected expenses come up, one things leads to another and before you know it, something's got to give! Let's say you can no longer afford to pay your life insurance premium. You should definitely know the possible consequences. The effect depends on the type of policy and coverage you have and the policy terms and conditions.

Term Life Insurance: Unfortunately if you stop paying your premiums, your coverage lapses and this life policy is terminated for good. The trade off is, Term Life policies are generally much, much cheaper than other types of life policies.

Permanent Life (Whole Life, Variable Life, Universal Life, etc.): These are generally much more expensive policies. If you have this type of policy, you will likely have the following choices:

  • Cash out the policy.
    This means you can stop paying the premium and collect the available cash savings. You will no longer be covered by life insurance, but you will at least save some of the proceeds of the policy. You may, however, have to pay taxes on some of the cash value if the sum exceeds what you have paid in premiums.

  • Non-forfeiture options
    There may be a "reduced paid-up" option. This means that you can stop paying premiums completely in return for a reduced death benefit and no cash saving. You may also be able to convert the permanent policy to an extended term policy for a time period based on the accumulated cash savings in the policy.

  • Policy will lapse
    If this happens, see if the policy can be reinstated. Some insurers may allow this if you do it within five years of lapsing. You will most likely have to pass a physical examination for the reinstated policy and pay back the premiums you would have paid plus interest. Annual premiums for the reinstated policy may be lower than those for a new, comparable policy.

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