Maybe paying premiums has become a financial burden over new needs, or maybe your children are financially stable enough to not require a death benefit, or you simply want to quit your life insurance policy. Oftentimes, people are unaware, or they simply couldn’t care less, about their insurance policy lapsing when the cash is better spent elsewhere.
What happens when you stop paying premiums?
Cutting your premiums starts a certain grace period set as part of your insurance policy. For a term life insurance policy, it starts as soon as your last missed deadline. For a permanent life insurance policy with a cash value component, the insurer would have to assume you’re still paying premiums with your saved cash value. After that’s depleted, the grace period kicks in. This grace period maybe 30 days to a few months, depending on your insurer. Once this period passes, your insurance policy officially lapses. This means that the insurance company no longer has a legal obligation to give your beneficiaries death benefit when you die. This also nulls other benefits such as cash savings and the like. That leads to thousands of pesos wasted on now unclaimable life insurance benefits! The waste is much larger for permanent life insurance policies than term insurance.
Good thing there are other things you can do that will not waste months to even years of premiums!
Better options than lapsing your life insurance
Reinstate your insurance
The sooner you reinstate your policy, the easier it is to do. If you renew within 30 days after the lapse, you would just need to fill out a reinstatement application form, and your insurance is reinstated without any further questions or underwriting. Delay this up to 6 months and you’d need another medical exam to prove that nothing has changed on your health since your original insurance application. Some insurers allow reinstatement up to 5 years of lapse, but the terms and conditions vary widely. After the reinstatement, you are to pay your missed premiums plus interest so you can get back all your insurance privileges.
Cash in your insurance value
This is applicable to permanent life insurance policies with life savings. Usually, you can withdraw part of your cash value after a few years of paying premiums. You can also file a loan or pay premiums with this earned cash from your premiums. Canceling your insurance policy will allow you to cash in the entirety of your insurance value, effectively “selling” it back to your insurer. You can no longer claim the benefits of your policy as a result of this.
Not all insurance companies have this option, definitely not for term insurance policies. This means you can stop paying premiums for a smaller death benefit and no cash saving. It’s sort of equivalent to converting your permanent life insurance into a long-term policy that ends immediately. You stop paying premiums to your convenience, but still, get the benefits equivalent to what you already paid.
This is when you sell your life insurance to a third party for straight cash. This cash is often more than the cash value of your policy when forfeited to the insurer, but much less than the death benefits your family will get when you die. In return, the buyer pays for your remaining premiums until you die and they receive the death benefit instead of your family. This is similar to what Filipinos call “pasalo” when it comes to installment properties.
Why sell my life insurance policy?
Because the cash payout is huge it’s oftentimes the best option for insured seniors looking for emergency cash or funding for a big purchase, especially if your beneficiaries don’t really need the death benefit anymore. This is on top of simply quitting to pay any more regular premiums for life!
Am I eligible?
Buyers consider the amount of your death benefit compared to the premiums they have to pay while you’re still alive. This being said, the larger your benefit is compared to your premiums, the more expensive they will pay for your policy. Furthermore, you can’t sell life insurance in its early years. Oftentimes you have to be already paying premiums for the last 5 years to even consider a life settlement. Allowing your policy to mature before selling means you can sell it for more in the future.
This being said, the difference between buying a life insurance policy and selling it requires totally different things from you too. An insurance company wants to make sure you’re healthy and will take longer to die, thus you’ll pay them more premiums, and your death benefit is delayed. Meanwhile, a buyer would find it ideal if you have a life expectancy of fewer than 24 hours. That means they pay fewer premiums and claim the death benefit quicker. The healthier you are, the less likely you can sell your policy. If you do, the value would be much lower than when you’re selling your policy to pay for your deathbed fees. Life settlement interviews are gruesome and morbid, to say the least.
Who can I sell it to?
Just because it’s in your buyers’ best interest for you to die quicker doesn’t mean you’ll be hunted down for your death benefit. This is why middlemen exist. For one, it’s hard to find individual buyers willing to buy expensive insurance policies. Another reason to go to a life insurance broker or provider to sell is they protect your identity from an unknown investor who’s only looking at your health status, premium payments, and death benefit. Brokers and providers also price insurance policies accordingly and are oftentimes appealing to both seller and buyer, respectively, as they both try to sell insurance policies for a commission.
How much can I get?
This totally depends on your eligibility. You can get a high payout when you have a higher death benefit, higher cash value, and lower premiums. This is similar to the criteria you looked for when you bought your policy! The payout is ramped up with the buyer’s shorter life expectancy. In general, you get a payout value between your insurance’s cash value and your death benefit.
Considering the costs and benefits of life settlement will allow you to decide if you’re really up for it. Is the cash now more important and needed than a future payout? If yes, then your best option would be a life settlement. If not, you’d be glad to know that there are more options to save your insurance upon missed premiums. If you’re still looking to start investing in your life insurance, make sure to start with a good one, that you may or may not sell for a good price in the future. Find the best life insurance in GoBear today!
Ask an Expert