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What To Do If You Cannot Pay Your Life Insurance Bill

Find out what options are available to you when you cannot afford to pay the life insurance premiums, including what happens if your policy lapses.

No one wants to go through a period of time when they can’t pay their bills. Unfortunately, it happens to most of us at least once in our lives.

During tough times, you may have to decide which bills to pay and which to skip. 

Paying your life insurance premiums may not seem like a priority. And, questions arise:

  • So what happens if you cannot pay your life insurance bill?
  • Will your policy lapse leaving you with no life insurance coverage?
  • Or do you have other options if you stop paying?

Ultimately, the answer lies within your current life insurance policy.

The outcome will vary depending on what your policy says and what options you may have available to you.

Here are some options you should consider and possible outcomes if you cannot pay your premium.

Cut Unnecessary Expenses

If you're in a financial bind, the first step is to clamp down on unnecessary expenses. 

It may be challenging.

Even so, cutting the cable bill, dining out and other luxury purchases early can make sure you have money left over to pay your life insurance premiums down the road.

Consider Paying With a Credit Card

Life insurance companies usually don’t allow you to pay your bill with credit cards. 

Instead of using a credit card to make life insurance payments, you may be able to use them to make other purchases. Then take the cash you’d use to make those purchases and use it to pay the premiums due.

If keeping your life insurance contract in place so your beneficiaries receive a death benefit is important, this may be worth added interest costs.

Check Your Policy for a Grace Period

Life insurance policies often come with a grace period included. 

The length of the period may vary from contract to contract. Normally, this is roughly 30 days from your premium’s due date, but it can be slightly shorter or longer.

Check your insurance policy contract to verify your policy has a grace period and how long it is. 

If it does, you have until the end of the grace period to get current on your life insurance premium payments before your policy coverage lapses.

Your life insurance company will need to receive and process your payment before the grace period expires. 

The grace period typically doesn’t allow extra time for the post office to get the payment to the insurer.

See If You Have a Waiver of Premium Rider

When you buy your life insurance policy, you may be able to add riders. 

These riders add benefits to your policy. The downside is they almost always add cost, too.

One critical rider to consider is the waiver of premium rider. If your policy has this, your premiums may be waived as long as you meet the rider’s requirements.

This particular rider generally works by waiving your premiums if you become disabled, have a critical illness or have a severe injury that impacts your ability to work. 

These waivers have rules that must be followed for them to kick in. You usually have to wait a certain period of time before the waiver starts. 

You must also meet the strict requirements listed in the policy for it to take effect.

Read your policy’s waiver, if you opted to have it, to see if it can help in your situation.

The Type of Life Insurance You Have Matters

What options you have often depends on the type of life insurance policy you have.

Term life insurance

Term life insurance is normally pretty bare bones.

Unfortunately, this means you probably don’t have as many options as you might with a more expensive permanent life insurance policy.

Generally, your policy will lapse if you quit making premium payments.

This means:

Coverage won’t be in effect if you die.

Permanent life insurance

Permanent life insurance may have many more aspects to a policy than term life insurance offers. 

In particular, you may have cash value or other options that provide some leeway if you can’t make your policy payments.

Make sure you completely understand how any of these options work before you use them. 

Consider all consequences and how they may impact your family and their future. Get professional help if needed.

Use your policy’s dividends

Some permanent life insurance policies pay their policyholders a recurring dividend payment. 

If your policy does this, consider using that payment to put toward your premium payments.

You’ll likely still need to come up with other funds, but at least it is a start.

Tap some of the cash value

If your policy has built up cash value, consider using some of it to pay your premiums.

The key is:

Making sure you don’t exhaust your cash value as that would cause your policy to lapse.

Taking out cash value can result in a reduced death benefit if you don’t put it back into the policy before you die.

For this reason, make sure to pay it back as soon as you’re able.

Change from an increasing to a level benefit

In rare cases where you decide to use insurance as an investment vehicle, which is generally recommended against, you may be able to switch your policy type to save money.

Some policies allow you to build an increasing benefit over time. This costs more than a standard level benefit that doesn’t change.

If you have an increasing benefit policy, see how much you could save by switching to a level benefit policy. It may be enough to lighten the financial load.

Check if a paid-up or lower death benefit option exists

Permanent life insurance policies also have another benefit that may work in your favor if you can’t make your premium payments.

You may be able to convert your policy to a paid-up policy. This uses your cash value to convert your policy into one where you won’t ever have to make another premium payment. 

The downside:

It will reduce the amount of death benefit your beneficiaries will receive when you die.

Another option may be reducing the policy’s death benefit to a lower amount or dropping riders you no longer need. 

Reducing coverage almost always results in lower premium payments.

Look Into Getting a New Policy Later or Getting Your Policy Reinstated

If you decided to let your policy lapse, you may still be able to get life insurance again. 

As long as you’re still relatively healthy and insurable, you can generally get a new life insurance policy.

New policy means higher premiums

In most cases, a new life insurance policy will have higher premiums. 

This is because you’re older than when you took out your initial life insurance policy and therefore are more likely to die.

If your health has declined, this may also increase your rates.

Reinstatement

You may be able to get your old policy reinstated.

Some insurers offer a straightforward process if you fill out a reinstatement application within 30 days of the policy lapsing. 

You may have to get a medical exam before the policy can be reinstated. You typically have to pay any premiums you missed and may have to pay interest, too. 

If you wait longer than 30 days and your life insurance company still offers reinstatement, your policy may have to go through underwriting again.

This is often a more detailed process.

The best part, however:

If the life insurance company decides to reinstate the policy, you may end up with lower premiums than getting a new policy.

Read your policy to see if reinstatement is an option and how it works.

Think About Whether You Still Need Life Insurance

Depending on where you’re at in your financial journey, you may no longer need life insurance. 

If you’ve built sufficient assets, no longer have many children dependent on you and have no debt, your spouse may be fine financially if you pass away. 

In this case, letting your life insurance policy lapse could save you the premium payments. The downside is your spouse won’t get a death benefit when you die.

Consider Talking to a Professional

If you aren’t sure what your options are or are overwhelmed by your options, consider contacting your life insurance agent. 

They can walk you through your options based on your policy.

Ultimately, you have to decide if keeping your life insurance coverage is more important to you than your other financial obligations. 

Life insurance agents generally won’t tell you to cancel the policy payment because it could impact their commissions. They can, however, help you find ways to make the payments.

In some cases, you may decide to let the policy lapse and get a new one later. In other instances, keeping your life insurance policy active may be one of your most important goals. 

Be aware of your options so you can make an informed decision about what’s best for your family.