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If I can't pay my premium, what should I do?
If unexpected
expenses come up and you can’t pay your life insurance premium, you
should know the possible consequences. The effect depends on the type
of policy and coverage you have and the policy terms and conditions.
Term: If you stop paying premiums,
your coverage lapses.
Permanent: If you have this type
of policy, you will have the following choices:
- Cash out the policy.
This means that you can stop paying the premium and collect the
available cash savings. You will no longer be covered by life
insurance, but you will at least save some of the proceeds of the
policy. You may, however, have to pay taxes on some of the cash value
if the sum exceeds what you have paid in premiums.
- Non-forfeiture options
There may be a “reduced paid-up” option. This means that you can stop
paying premiums completely in return for a reduced death benefit and no
cash saving. You may also be able to convert the permanent policy to an
extended term policy for a time period based on the accumulated cash
savings in the policy.
- Policy will lapse
If this happens, see if the policy can be reinstated. Some insurers may
allow this if you do it within five years of lapsing. You will most
likely have to pass a physical examination for the reinstated policy
and pay back the premiums you would have paid plus interest. Annual
premiums for the reinstated policy may be lower than those for a new,
comparable policy.
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