Tough Times? Tips to Keep Your Life Insurance Policy From Lapsing

This harsh economic climate is home to several shocking trends, one of which is this fact: Only 44% of households have an individual life insurance policy, while 30% have no individual or group life insurance whatsoever (survey by LIMRA, an industry-sponsored group). This is the lowest level in 50 years, making everyone concerned about how to keep up coverage for themselves and their loved ones.
Lapses in payments usually occur due to financial conflicts because of job loss, business losses, divorce payouts, or the onset of debilitating illnesses with large medical bills. According to the 2007 US Individual Life Insurance Persistency Update by LIMRA and the SOA (Society of Actuaries), lapse rates figure at 3.5% on whole life (WL) policies and go up to almost 7% on term insurance.
Insurance companies do not look kindly on multiple lapses. Only a few companies overlook past lapsed policies when underwriting a new one; most include a stringent review of reasons for your past lapses. Because underwriting an entirely new policy is an expense to the company (agent commissions, medical check-up), lapses make you a liability to the company. If your application is not denied outright, chances are you may be underwritten at a higher rate than what you would typically qualify for. Reinstating your policy is another tough procedure, especially in the case of a WL policy with overdue premiums and loans against it.
Here is some advice to help keep you policy current:
If you're struggling to stay afloat

• Convert from a group policy to an individual policy as soon as possible. The chances are too high that you'll end up losing life insurance coverage if you lose your job. Speak with your advisor at work to find out how to convert ownership at a reasonable price.
• If you have a growing family with loans and mortgages, cut back on unnecessary expenses and put the savings towards your life insurance. Struggling as a single parent in a tough economy is not a pretty picture; you want to provide some degree of safety to your family in the worst scenario.
• Use the cash value component to make premium payments in your WL policy. The caveat to this is, if you need cash to pay urgent bills, you should surrender the policy, use it for pressing expenses and get term insurance instead.
• Review your need for a whole life policy at this time. Whole life works for policy holders with higher income brackets. Buy term life instead with a whole life conversion rider which will let you switch to WL when you've ridden out the uncertainty.

If you have a job now but things seem uncertain in the near future

• Consider switching from group life insurance to individual insurance as soon as possible.
• Pinch your pennies now so you get into the habit of saving for later. At the very least, do everything in your power so you don't give up term coverage, especially if you have large loans that still need to be paid.
• Get the "waiver of premium" rider to help make payments indefinitely should disability prevent you from working in the future.

If you are secure now, but want the best life insurance for you and your family

• Don't get too comfortable where you are now. Review your coverage and increase it if necessary. If you're looking for ways to grow your money in a tax deferred shelter, consider a WL policy.
• Add riders on your current policy like "waiver of premium" in the case of disability, "accelerated death benefits" in the case of illnesses, or "long term care" insurance.
• If you are young and are looking to buy whole life insurance, commit to the long haul. Younger people abandon whole life in larger numbers, according to the 2007 US Individual Life Insurance Persistency Update. Don't use its cash value unless extremely urgent. Don't use it at all if the policy is only 5 years old and still earning negative relative returns because of high surrender values.

Other reminders to keep your policy from lapsing:

• Review your life insurance policy yearly. You may find the need to convert to an individual policy, to add riders, or to change coverage amounts based on where you are on your savings plan towards retirement.
• Update your address so that you can receive bills and make payments on time
• Find easier ways to make regular payments. Arrange for electronic transfers of funds from your account to your policy, and automate it through your bank if possible.
• Look for guaranteed level term premium to avoid the high costs of inflation on premium payments as the years go by.

Don't give up on the peace of mind that your life insurance policy gives you. In an unpredictable world with unforeseen circumstances, having one can mean the difference between some comfort and much regret in hindsight.

About AccuQuote:
AccuQuote is a leader in providing term life quotes to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term life insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term life insurance rates by comparing thousands of life insurance policies from dozens of top-rated carriers.

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