Your life insurance policy will protect your loved ones financially in the event that you pass away. It is an integral and fundamental component of a sound financial plan. With this, you can have peace of mind knowing that you can still provide for your family even if you’re no longer with them physically.

In the United States, you have two basic types to choose from: term life insurance and whole life insurance. In this guide, you’ll learn all about the former.

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Keeping your policy: The Whys

The fact itself that you’ve already paid quite some amount of money towards your coverage should already make you hesitant to drop it just because you suddenly find yourself in a financial pinch. Although going without insurance means less monthly expenses, you can’t compare this amount with the benefits it will pay out when your loved ones lose you. Also, keep in mind that monthly premiums can cost as low as $20 (or even less), while funeral expenses can incur thousands and thousands of dollars.

What you should do then

It depends on the type of policy you have, which can be one of these two: term or whole life insurance. When you stop making payments towards your term coverage, it will lapse. As for whole life coverage, you have several options, the Insurance Information Institute advises.

Term Life insurance policy holders

You’ll be relieved to know that all insurance companies selling term coverage implement a grace period for payments. This applies to all states in the country, be it in Alabama, Colorado, Georgia, South Dakota, or Wyoming. In most cases, this lasts for up to 30 days. This means you still have up to a month to make the payment. Just make sure you settle with them before the end of the grace period, so that your policy won’t lapse.

For those who have Whole Life

You have more possible solutions as a whole life policy holder, which you should consider first so you can hold on to your policy:

  • Use the cash value your policy has accumulated. When you’ve had your whole life coverage for quite some time now, it most likely had already built enough cash value that you can use to pay your premiums with. Consider how long you need this support in making payments towards your premiums, and contact your insurer. Just remember that cashing in on your policy will reduce the payout, so limit the length of time you’ll rely on its savings component.

  • Use the dividends to pay your premiums. Your insurance provider may allow you to use your policy’s dividends in the event you can’t pay your premiums for a certain amount of time.

  • Consider lowering your policy’s value. Rather than giving up your entire policy, you might want to just lower its value, which will also lower your premiums.

  • Ask your insurer about swapping your permanent life insurance for term coverage. Some insurers also allow their whole life policy holders to make the switch to term in the event of financial difficulties making them unable to pay for premiums. In this case, your provider will deduct cancellation fees and other applicable charges from your policy’s accumulated cash value which you can then use this to purchase term. Purchase a new one right away to reduce the risks of going uninsured.

As you can see, you still have several options to remain insured even if you can’t make your premium payments on time. So don’t drop your life insurance policy right away; explore these solutions first.

References:

Bankrate: http://www.bankrate.com/finance/insurance/can-t-pay-your-life-insurance-premiums-1.aspx

Insurance Information Institute: http://www.iii.org/article/if-i-cant-pay-my-premium-what-should-i-do

NerdWallet: https://www.nerdwallet.com/blog/insurance/paying-for-life-insurance/