Tips & Tricks to Pay Your Life Insurance Premiums During a Crisis

  • If your income or circumstances change, it might be challenging for you to pay your life insurance premiums.
  • Your policy might lapse depending on what type of insurance you have.
  • If you have whole life insurance, you have multiple options to preserve your coverage.

You’ve had your life insurance policy for a few years, and you have been paying your life insurance premiums on time. But in the past months, your circumstances have changed, and it’s becoming challenging—or nearly impossible—for you to keep up with the payments. What should you do?

This is a scenario more and more life insurance agents are hearing from their clients, since the COVID-19 pandemic has caused a significant number of people to lose part or all of their income. And in situations like this, it’s understandable if you need to reduce your expenses to the absolute essentials.

According to the Insurance Information Institute, what your options are depends on the type of policy you have.  

Term Life Insurance

If you have term life insurance, your coverage lapses if you stop paying your premiums. However, there may be a short grace period of a month or six weeks. Contact your life insurer to find out exactly how long you have before you must pay.

Whole Life Insurance

If you have a whole life insurance policy, you have several different options.

  • Use your rider. If you have a rider that protects you in the event of unemployment or other loss of income, leverage it to cover your costs until you’ve reinstated your income.
  • Use your cash value to pay your premiums. If your policy has been in place for a significant amount of time, the cash value should also be significant. You can cash out and use the dollar value to cover your payments. Just be mindful that you’ll have to pay taxes over the sum—plus, you’ll have to pay the amount you cashed out back to the policy if you don’t want it to come out of the death benefit.
  • Pay your premiums with any dividends you have. NerdWallet advises that if your insurance policy pays dividends on the investments that are made within the policy, you can use those to pay some of your premiums.
  • Leverage non-forfeiture options. Some policies offer a reduced paid-up option that allows you to stop paying premiums in return for a lower death benefit without any cash savings. Alternatively, you might be able to convert the policy to a term policy depending on how much cash savings you’ve accumulated.
  • Let the policy lapse and reinstate it later. Some life insurers allow you to reinstate a policy within five years. However, you’ll likely have to undergo another physical, and your premiums will probably be higher because you’ll be older.

Get Expert Advice

If you’re concerned about your options, contact our team at Liberty Financial Group. We’ll discuss your options with you and see if there’s a more affordable policy that meets your needs.

Sources

https://www.iii.org/article/if-i-cant-pay-my-premium-what-should-i-do

https://www.nerdwallet.com/blog/insurance/paying-for-life-insurance/