Grandchildren, afternoons with friends, and time to travel are wonderful benefits of aging, but financial struggles can be part of the reality, too. Older adults are looking for ways to cut their expenses, and many believe they can’t afford life insurance premiums.
If you feel this way, you’re not alone. Almost 40% of older Americans feel financially insecure, while 60% are concerned their savings won’t last through retirement, according to AARP.
What happens if you don’t pay your insurance premium? If you can no longer afford your premium, your options include investigating your life settlement eligibility, reducing your coverage, or changing your policy. In this practical guide, Life Settlement Advisors will help you explore the best ways to reduce your expenses so you can enjoy life fully.
What Happens If You Stop Paying Life Insurance Premiums
Seniors often ask, “If you stop paying life insurance, what happens?” The answer will depend on which type of policy you have. If you have term life insurance, your policy will simply lapse. You won’t receive any money back, as the policy does not have cash value.
If you have permanent life insurance, such as whole life or universal insurance, your policy will have cash value. This offers you more options for when you can’t afford life insurance premiums.
Your Options When You Can No Longer Afford Premiums
Older Americans with permanent life insurance policies have many more options than they realize. They can reduce expenses and, with a life settlement, quickly gain access to funds they can use to supplement retirement, pay off medical bills, or finally see that dream checked off the bucket list.
Before you move forward, you first need to decide whether you need coverage at all. Talking to loved ones can help you make the best choice.
Request a Grace Period or Payment Deferral
To give yourself a little breathing room, contact your insurer to request a premium waiver before you miss a payment. Most policies have a 30- or 31-day grace period. By choosing this opportunity instead of a lapse, you won’t feel rushed into deciding among the options.
Reduce Your Coverage Amount
One option for some older Americans who can’t afford life insurance premiums is to reduce their coverage amount on their policy. When you lower your death benefit, you also reduce your premium. This makes sense if coverage is still required, but at a lower level.
Use the Policy’s Cash Value to Cover Premiums
Your policy likely has an accumulated cash value based on your years of payments. You may be able to pay your current premium temporarily with this investment. The policy stays active, but you’ll deplete the cash value over time and could reduce your death benefit. If you decide to take a life settlement later, your life settlement value will be lower, too.
Take a Policy Loan
Some seniors struggling with their premiums consider a policy loan. This option involves borrowing against your cash value without canceling the policy. You won’t have tax implications if the policy stays in force, but your unpaid loan balances can have long-term impacts. You can reduce your death benefit and even cause your policy to lapse if the balance exceeds the cash value.
Switch to Reduced Paid-Up Insurance
Reduced paid-up insurance is a type of life insurance policy with no future premium obligations, and you may be able to purchase these plans with the existing cash value of your current policy. These almost always have smaller benefits, but coverage can continue.
Surrender the Policy
What happens if you stop paying whole life insurance premiums altogether? If you cancel your policy, you’ll receive the cash surrender value minus any surrender charges and outstanding loans. You won’t get all your money back, and you won’t receive your full death benefit. This is a drastic and permanent option.
When you surrender a life insurance policy, you almost always get the lowest value because the insurer can set the payout without any competition. Before you surrender, it’s worth investigating what you could get for your policy through a life settlement with Life Settlement Advisors.
The Option Most Policyholders Don’t Know About: Selling Your Policy
When you can’t afford life insurance premiums, one of the smartest, yet often overlooked, plans is a life settlement. This process involves selling a qualifying permanent policy to a third-party buyer. You’ll receive a lump sum payment, and the life settlement value typically exceeds the cash surrender value significantly.
Selling your policy basically means using the market to get a better deal and end your premium payments at the point of sale. Your broker can explain the taxes on life settlements, so you’re fully in charge and comfortable with your financial future.
Life Settlement Advisors is a broker that works exclusively for the seller and submits the policy to multiple institutional buyers. This generates competitive offers and improves chances of getting a better deal out of the sale. Connect with us to see if you qualify for a life settlement today.
How to Choose the Right Option for Your Situation
Now that you know your options, let’s break down the immediate steps for you and your family. You likely fit into one of three scenarios:
- 1. You still need some coverage, but the current one is too high. You can reduce your coverage, use the cash value, or take a policy loan.
- 2. You no longer need coverage and are ready to exit the policy. In this case, it’s best to compare the surrender value against a life settlement quote.
- 3. You need the highest possible payout. For this, a life settlement is likely the best bet.
Can’t Afford Premiums? See If Your Policy Qualifies for a Life Settlement
Before you let a policy lapse or surrender it, reach out to Life Settlement Advisors to see if you qualify for a life settlement. We can help you understand what your policy is worth before making any final decision.
