What Happens If a Life Insurance Policy Lapses?
The dollar amount of death benefit payouts that seniors 65 and older forfeit annually through lapsed or surrendered life insurance policies is more than the net worth
That’s $112 billion worth of death benefits, inheritance, donations to charities, and cash value down the drain. Or, more specifically, that’s $112 billion that goes right back to insurance companies – all because policyholders surrendered their policies or allowed them to lapse.
A lapse in a life insurance policy occurs when a premium isn’t paid. There is a brief grace period in which a premium payment for a life insurance policy can still be made. But if the payment is not made during the grace period, the life insurance policy will lapse. At this point, all benefits are lost.
There are circumstances in which the life insurance policy can be recovered. It could be as simple as resuming premium payments… or it could involve a lengthy process that includes a new medical exam, repaying all premium payments from the lapsed period, and possibly the services of an attorney.
The best practice to avoid a policy lapse is to make premium payments on time. To help out their customers, many insurance companies can automatically withdraw the monthly payment from a checking account, and some companies may take missed premium payments out of the policy’s cash value – but please note: term life insurance has no cash value. In this case, missed premium payments won’t have the cash value failsafe.
If you’re in danger of a lapse, contact me today. Together we can review your financial strategy to help you and your loved ones stay covered.
Sources: Forbes: “Forbes 2017 Billionaires List: Meet The Richest People On The Planet,” 3.20.2017
ThinkAdvisor: “Forfeited life insurance benefits pegged at $112 billion,” 2.24.2015