An all-too-common occurrence for life insurance policy holders is one in which someone bought a life insurance policy many years ago, they paid the premiums diligently, and they got a Lapse Notice suddenly. The Notice says,”… your premium is not sufficient to cover the policy costs, please submit (much more) money to maintain your valuable coverage.” You’ll probably look for help from the insurer or agent. Here are a few things you should consider in keeping your valuable coverage.
The policyholder also thinks of life insurance the same way he thinks about auto insurance. They receive a premium notice, pay the premium amount specified on the notice, and assume that they have met their obligation to obtain coverage. What they don’t realize is that the premium isn’t the same as the cost with life insurance plans, like universal life, indexed life, whole life and variable life.
Premium is what the insurance company pays you. The coverage costs are policy fees.
With these policies as the insured gets older the cost of life insurance policy is greater. This is usually the place where the trouble happens. The policy expenses at some point in time, and often unknown to the policy owner, exceed the premium to be paid. It triggers a provision in the policy that allows the insurer to make up any shortfall of premium costs from the cash value of the policy, without having to alert the policy owner. The life insurance policy will be stripped of its cash value as this event occurs every month and will push towards a loss.
Before a life insurance policy expires, the insurer is obliged to mail a lapse notice giving the policy owner 31 days to pay a premium to cover expenses worth one month. However, the problem is that the expenses typically exceeded considerably the amount of premium the owner paid.
It’s common for the new premium to be three or four times, or even more, than they had paid. This can remove the cost of the coverage from its financial reach. There may be no reason for the increase in premiums and a life insurance specialist will review the policy to decide if you are overcharged.
To ensure that you are not caught off guard by increasing policy fees and losing your valuable coverage, one thing you can do is review your policy with an agent every year. You should bring a recent Annual Statement for the policy in this meeting and the agent should provide illustrations in force. These are the tools that best inform you about the expenses of the policy, and where your premium amounts should be set for the year.
If you have received a notice of lapse for your life insurance policy, here are some things you can do: 1. Reduce mortality benefit to an acceptable level. The lower the benefit of death the lower the premium.
- Ask the insurer for the costs of keeping the policy in force to an age below maturity. In other words, as one example, a compulsory life insurance policy would remain in force until age 100 of the insured. Fees are set according to this assumption of age— 100. If you tell the insurer that you only want the policy to remain in force until age 86 (for instance), the premium required will be lower.
- Ask the insurer if they are offering a cheaper insurance package to swap the policy for.
- Get the support of a trained agent to help you understand and make policy decisions.
- Have a life insurance analyst review the policy, past payments and future payments to determine if the coverage overloads you.