It's important to know what to expect.
Having life insurance is extremely important. Without it, your loved ones might struggle financially upon your passing.
But life insurance is also an ongoing expense you'll need to bear. And you may reach a point when you start to struggle to keep up with your life insurance premium costs.
In fact, you may already be in that situation today. A lot of people are struggling to keep up with their bills in general due to inflation. So if you're having a hard time putting food on the table, you may have to prioritize that over your life insurance premiums.
Now, as you might imagine, failing to make your life insurance premium payments could have negative consequences. But those consequences will hinge heavily on the type of policy you have and its specific waivers and rules.
The consequences can vary
If you stop paying your cable bill, at some point, your cable company is going to stop providing you with that service. Similarly, your life insurance company might have to pull your coverage if you can no longer afford your premiums and you stop paying them.
But just because you've run into affordability issues doesn't mean you're doomed to lose your life insurance coverage. For one thing, it's pretty common for life insurance companies to give policyholders a 30-day grace period for making premium payments. So if your next payment is due on March 30 and you don't make it on time, but you manage to come up with the funds by the end of April, you may not see your coverage lapse.
What’s more, if you reach out to your life insurance company and explain that you've run into a financial hardship, they might agree to extend your grace period or work with you in another way. So it's worth making that call.
Meanwhile, some life insurance policies have a waiver of premium rider added on. This rider allows you to stop making payments if you become disabled without losing your coverage. If your policy has this rider and you can no longer afford your premiums because a disability is interfering with your ability to earn money, you may be covered.
If you have whole life insurance, and have held your policy for a number of years already, you may have accumulated a cash value. You can generally use that cash value to cover your premium costs if you can't pay yourself.
Along these lines, with whole life insurance, you could opt to cash out your policy once your premiums are no longer affordable to you. That way, you'll get some financial benefit -- but then you also won't have life insurance anymore.
Make sure your life insurance premiums work for your budget
Running into affordability issues with life insurance could result in lapsed coverage. So it's important to make sure you can swing the cost of your premiums and that they aren't too much of a stretch for your budget.
Generally, you'll spend a lot less on term life insurance than on whole life insurance, so opting for the former is a great way to keep your premium costs down. Also, don't overbuy coverage. If you earn $60,000 a year, you may want a life insurance policy that replaces your salary 10 to 20 times over. But you don't necessarily need a $2.5 million benefit from your policy, and opting for one is apt to result in higher premium costs.
Finally, shop around with different life insurance companies when you're in the process of putting coverage into place. That move alone might help you avoid a scenario where you stop being able to afford your premiums.
