A lot of people get into a situation where they can’t pay their life insurance premiums. Often, the solution is to ignore the premium notice. When you do that, your life insurance will lapse and it ends.
After that, you won’t receive any more notices from the insurance company.
Before you let that happen, it’s a good idea to see if there are any other ways you can handle it.
One way, is by using a nonforfeiture option.
But what are nonforfeiture options anyway? I’m going to go over what they are below. After that, I’ll go over a couple of other options to look at before the non-forfeiture options.
What are Nonforfeiture Options?
Nonforfeiture options are a feature of whole life insurance policies. These options allow you to stop paying premiums. You can then cash your policy in, buy a reduced paid up policy or buy extended term insurance.
Let’s go into more details about these three options.
The Three Nonforfeiture Options
There are three nonforfeiture options available. Keep in mind that each option depends on the value of your policy. If you haven’t had your policy very long, you won’t have any cash value and no nonforfeiture options are available.
If you do have cash value, remember that it may be subject to a surrender charge. A surrender charge is a penalty for cancelling early. Any surrender charge comes out of the cash value in your policy. It’s not something you have to pay out of your own pocket. If you have borrowed from the policy in the past, that would also reduce your cash value.
With that said, here are the three nonforfeiture options.
- Cash surrender This is cashing your policy in. The insurance company will send you a check for the net cash value and then you can do whatever you want with the money. You’ll use the cash surrender option if you need the cash.
- Reduced paid up insurance You can use the cash value to purchase a whole life policy that is paid for. It will be less than the original face amount and since it is paid up, it won’t require premiums. You’ll just own that amount of life insurance from that point forward until you die.
- Extended term insurance You can use the cash value to keep the original life insurance face amount but only for a specific term, or time period. How long the term is depends on the cash value of the policy. Once it’s changed to extended term, you won’t have to pay premiums anymore but you also won’t build any more cash value.
Before you cash your policy in, keep reading for some other options to consider before you do.
Can’t Pay Because You Are You Disabled? On Strike?
If you can’t pay your premium because you are disabled, you might qualify for a waiver of premium benefit if you added that rider when you bought the policy.
I’ve also heard of waivers for if you go on strike. They are rare but do exist.
Either rider, if you qualify, would help you pay your premiums.
Check Your Policy Dividends
Take a Policy Loan to Pay Your Premium and Use Automatic Premium Loan
Reduce the Face Amount of the Policy
Don’t Just Stop Paying Your Premium to Let Your Policy Lapse
Whether you have cash value or not, I always recommend filling out a cash surrender form if your intention to cancel it. This accomplishes to things. First it makes sure you don’t waste your money. Second it lets the insurance company know what you want to do and then you don’t waste their money sending you all these notices.
Believe it or not an astounding number of people just let their policies lapse.