Life can be complicated. With all the new kinds of technology, entertainment and demands of this decade, it can be easy to forget things every once in a while, whether it’s the afternoon dentist appointment or the pasta you’ve accidentally left on the stove. However, when it comes to your life insurance, forgetting to make your premium payments can be disastrous.
Or perhaps you haven’t forgotten about your life insurance payments at all—perhaps it’s actually a burden on your time and your finances. We’ve all been there– particularly after the Great Recession, times have been lean for many Americans. When unexpected expenses come up out of the blue, they can make it impossible to balance your budget. For some seniors, their annual life insurance premium payments are the first thing to be put on pause.
This means our insurance policy changes from an active contract of coverage to well… nothing. Your provider is no longer under any obligation to give you coverage past a scant 31-day grace period to catch up on your payment.
If you have a term policy and allow it to lapse, no money will be passed on to your survivors. That means you’ll lose out on all the money you ever paid in premiums.
Lapses occur for several reasons: it becomes too expensive to pay for the policy; the insured doesn’t want or need the coverage anymore, or the insured lacks information about other options. While there is usually a reinstatement period available for those who do want and can pay for their policy, your rates will go up, sometimes drastically due to the underwriting process and your increase in age since purchasing the coverage.
Luckily, there is a lesser-known alternative to letting your policy lapse, and this one is actually profitable for you. Through a life settlement, you can sell your policy on the secondary market for life insurance and receive a cash sum. The institutional buyer will take over the responsibility of paying for your premium and will receive the full death benefit. A study by the US Government Accountability Office shows that seniors who sell their policies receive more than seven times as much money as if they had surrendered their policy to their insurer.
More than four out of 10 seniors let their policies lapse, but a recent survey said that if they had known they could settle, 90% would have done so.
There are a few ways to avoid letting your life insurance policy lapse:
- Think of your policy as an active asset. Buying and then forgetting about it is a blueprint for disaster. Stay informed by reading all mail from your insurance company. Review your policy every few years to verify that it suits your needs and is properly budgeted for.
- Automatically draft payments so you never forget.
- Contact The Ashar Group to sell your policy for Fair Market Value on the secondary insurance market today. Get started by taking our quiz to see if you qualify!
Re-posted with permission from Ashar Group.
On July 13, 2015 / Financial Planning
