As in today’s day and age, it is very significant to have a life insurance policy, checking the premium payment status of the policy time to time is equally important. By paying the premium of the policy on time, the insurance holder can avail the uninterrupted coverage of the policy.
However, if the policyholder fails to pay the premium of the policy on time and in case the coverage of the policy ceases, then they can renew the policy. By renewing the policy, the insured can continue with the benefits of the plan. Further, in this article we will elaborately discuss about what to do, in case the term insurance expires.
Make Premium Payments on Time
In order to make the most of your term policy, it is important to know the date of expiry, coverage and other terms and conditions of the policy. If you inadvertently forget to renew your life insurance policy before the payment due date then the policy lapses and you are left without cover. It would be tragic if some unfortunate event occurred during the time the policy lapsed and the time of getting a new one. Your family will be hit hard financially and they would have no protection although you had paid regularly for the entire term of the policy. First piece of advice – keep your policy active and pay your premium before the policy expiry date.
Don’t wait until the policy expires. Review your needs much before the maturity date. More options are available to you while the policy is still in force than when the insurance policy has lapsed.
Technically speaking, most term life insurance policies do not “expire” until the insured reaches the age of 95. This means that you can keep your policy active by continuing to pay the premiums.
Extending the policy may be a good option if you have reached the age of 70 or cannot qualify for a new policy. However the cost of keeping the policy active will significantly rise as the years go by.
Some of the other options available to policy holder whose policy has lapsed include (but not restricted) to the following:
Renew your Term Life Insurance
Your first choice should be to renew your term life insurance policy. Compared to the previous years, the procedure to buy policies is more streamlined – this makes it hassle free. With technology available you can buy online term insurance within minutes. Online life insurance renewals are safe since it the insurance company’s website. It also means that all the information is current and there is no ambiguity. In case of any doubts you can also talk to the customer service agents who will provide you with authentic and up-to-date information. Some companies have live chats where you can chat with a live agent.
Online insurance purchases give you the flexibility and convenience. You can set up an arrangement (ECS) with the bank and the insurer where the insurer raises a premium advice with the bank and the bank debits your account with the premium and pays it to the insurer. This will take away the burden of remembering the due date. All insurers give you several options to make payment on line. You can use internet banking or use your debit or credit card to make a payment for your term life insurance premiums. You can also write a cheque for the premium and hand it over to the agent or drop it in the mail box (well ahead of the due date).
Why You Should Renew Your Policy
Renewing your insurance policy online saves you money because the premium rates are lower. You lso save the cost of commission you would have to pay to the agent.
It is important to keep a tab on the renewal date and maturity date so that you can plan ahead on whether you want to renew it, convert it or choose some other options.
Convert your insurance
Some insurance companies may convert your term policy to whole life insurance policies. This should be done before your term policy expires. One of the benefits of this conversion is that you do not have to undergo any medical test nor are you required to prove your insurability provided that your sum assured is the same. Most insurance companies allow you to convert to whole life insurance which will remain in force till the rest of your life.
However, you have very little time to make the conversion. Some insurers allow you to convert to whole life cover only within the first 10 years of the policy term while others convert the policy for at least 15 years into the term of the policy. Some insurers have better conversion option than others.
Buy a New Whole Life Insurance Policy
If you are not sure about the length of time you need the policy they a whole life insurance is the answer. For example, if you have to support a child with special needs or if you are in good health and want a better deal rather than converting it. There are several kinds of whole life insurance policies.
Whole Life Insurance plans are more expensive than Term insurance. In this policy the death benefit increases and the policy also builds up cash value that is available for your sue. You can withdraw up to an amount equal to the premiums you have paid. This amount is tax free and need not be paid back as it will be deducted from the death benefit. If you start at the age of 50 earlier the premium will be lower than when you are older.
Whole life offers some flexibility. You can use one third for retirement income, one third for your family and the rest to be for other expenses. The cash returns will be higher for short term interest rates. The cash value will accumulate after the policy fees are wiped out – generally after three to four years.
Other types of whole life insurance include
Simplified Life insurance: No medical examination is required. All you have to do fill in a health questionnaire.
Guaranteed Life Insurance: The insured is covered without a medical examination – not even a health questionnaire is required.
Final Expense Life Insurance: This policy is ideal for persons between the ages of 5 to 80 years old. The policy is in force till the insured reached 100 years. This is basically to meet medical expenses, funeral costs and any other end of life costs.
Self Insurance
You have identified certain events in your life where you will be needing money. This could be a purchase of a new car, children’s schooling, collage expense, medical expenses and retirement and emergency funds. You can save for these in different earmarked accounts. This basically means that you are not dependent on any insurance. In case of your death the family’s death would be covered by the savings and assets that you have built up during your life time.
This is possible only if you don’t have any dependents relying on your salary. There will be a time when your assets outweigh your coverage needs.
Long Term Care Benefits
Some insurance companies offer policies that combine long term care coverage along with the life insurance policy. In this policy you can withdraw a portion of your death benefit whenever you need it for long term care expenses. In this type of policy there is generally no increase in premiums.
Plan Early in Your Life
The earlier you buy life insurance cover the better since the premiums are pretty low. Find the right plan that fits your overall goals in life and proceed accordingly.
You could opt for the whole life insurance and never worry about coverage expiring. However, in this case the premiums are higher than the premiums for term insurance and young families who start ut early buy too little coverage because that’s what they can afford.
Younger insurers with families should primarily focus on death benefit amount. The amount should be substantial while the premium should be affordable.
Why Does Insurance Premiums Increase every Year?
From the insurers’ point of view, every year you live makes you a bit more riskier than the last. Insurance companies charge the extra amount to cover the increased risk. However, such policies are not very popular since the premiums go up every year.
The Ladder Strategy
Your best bet would be to have life insurance when you need it. You can achieve your goals through a combination of calculation of your life insurance needs. You have to budget properly, investing and planning for you and your family. In case you have no money you should try the “ladder strategy”
In the ladder strategy you buy multiple policies of varying coverage and terms so you are always covered. The ladder strategy works by stacking or “laddering” multiple life insurance policies on top of each other. Each policy matures at different times allowing you to effectively reduce your coverage over time. At the same time you are locking in the low rates that were available when you first purchased the policy.
Ladder strategy is inherently more complex than just buying a single insurance policy. This may involve shopping for multiple policies from different vendors you also have to keep a sharp eye on the due dates and multiple bills and handle more paperwork. If you do happen to die, the executer of the will has to send notice of the insurer to various agencies for every policy he owned. If would create some problems if you are not organised and did not keep your family informed about all your policies and other holdings. This may create some problem till all the paper work is cleared.
Other Options to Save Your Policy from Lapsing
There are other options that can come to your rescue to save your life insurance. They are as follows:
- Replace your policy with a cheaper policy – especially you are healthy enough to qualify for a life insurance policy. The reduced cover will be much cheaper than the one that you have.
2. Decrease Your Death Benefit. Many insurance providers permit a onetime decrease in the face value of your policy. This will result in a reduction in your premium – which is something you were looking for considering your current financial standing.
3. Surrender Your Policy: If policy is convertible you can convert it then surrender it.
4. Allow Your Policy to Lapse: If nothing works for you then the last option is to simply stop paying the premiums and it will automatically lapse. The company can’t hound for payment since you are not obliged to pay. In any case, when the policy lapses the insurer stops your life cover.
5. Health Reclassification: Even if you opt for reduced death benefit or you decide to pay your premium there may be a way where you can save some money. This will depend on the state of your health – you are no longer over weight or you stopped smoking and your general health condition is good. In this case, most companies apply a onetime “health reclassification. Under this classification the company allows a reduction in your premium subject to the condition of your health.
In conclusion, it would be advisable to plan your next step and if required take the adviser of a financial or your insurance agent.
