Life insurance can be an important part of your financial plan, but circumstances change.
Maybe you’re living on a fixed retirement income. Maybe your premiums have increased, or other expenses have become more important. You may simply feel that the cost of your life insurance no longer fits comfortably into your budget.
If you’re struggling to afford your premiums, you might think your only choice is to stop paying and let the policy lapse.
Before you do that, it’s important to understand your options.
Depending on the type of life insurance policy you have, there may be several alternatives worth exploring.
Option 1: Keep Your Current Policy
First, consider whether you still need the coverage and whether there’s a reasonable way to continue paying for it.
Ask yourself:
- Do my loved ones still depend on this death benefit?
- Is this policy part of my estate or financial plan?
- Would losing this coverage create a financial hardship for my family?
- Can I comfortably afford the premiums without sacrificing other important expenses?
If the coverage is still important, reviewing the policy may uncover ways to make it more manageable.
Option 2: See If Your Coverage Can Be Adjusted
Depending on your policy, you may be able to make changes that reduce the cost of maintaining your coverage.
For example, some policies may allow you to reduce the death benefit or make other adjustments.
Changing your policy can also affect its benefits and future performance, so make sure you understand the consequences before making any changes.
Option 3: Review Your Policy’s Available Values
Some permanent life insurance policies accumulate cash value.
Depending on the policy, there may be options for accessing or using those values. However, taking withdrawals or loans can reduce the policy’s cash value and death benefit and may have other consequences.
Rather than assuming the money is available without restrictions, have the policy reviewed so you understand exactly how using its value could affect your coverage.
Option 4: Surrender the Policy
If you own a permanent life insurance policy with cash value, surrendering it may be another option.
When you surrender a policy, the insurance coverage ends and the insurance company may pay you its available cash surrender value, after applicable policy loans, charges, or other adjustments.
Once the policy is surrendered, your beneficiaries will no longer receive its death benefit.
Before surrendering, find out exactly what the policy is worth and whether other options may be available.
Option 5: Explore a Life Settlement
If you no longer want or can afford your policy, you may also want to determine whether it qualifies for a life settlement.
A life settlement involves selling an eligible life insurance policy to a third party in exchange for a lump-sum payment.
The buyer becomes the policy owner, generally takes responsibility for future premiums, and receives the policy’s death benefit when the insured passes away.
If your policy qualifies, the amount you receive is typically more than the policy’s cash surrender value but less than its death benefit.
Not every policy or policyholder qualifies, but it may be worth investigating before surrendering or allowing coverage to lapse.
What Happens If I Simply Stop Paying My Premiums?
The consequences depend on your particular policy.
Some policies may use available values to keep the coverage active temporarily, while others may eventually lapse if required premiums aren’t paid.
A lapse can mean losing the life insurance coverage you’ve maintained for years.
That’s why simply stopping payments without reviewing your policy first may not be the best approach.
Don’t Wait Until the Last Minute
If you’re having trouble keeping up with your premiums, try to review your options before the policy is in danger of lapsing.
Gather your most recent policy statement and contact your insurance company or insurance professional to find out:
- What is my current death benefit?
- What are my future premium requirements?
- Does my policy have cash value?
- Are there outstanding policy loans?
- Can my coverage or premiums be adjusted?
- What would I receive if I surrendered the policy?
- Could my policy potentially qualify for a life settlement?
Having this information gives you a much clearer picture of your choices.
You Have Options
Struggling with life insurance premiums doesn’t automatically mean you have to walk away from your policy.
You may be able to keep it, adjust it, surrender it, or potentially sell it, depending on your circumstances and the terms of your coverage.
Most importantly, don’t assume a policy you’ve paid into for many years has no value simply because you no longer want or can afford the premiums.
Having Trouble With Your Life Insurance Premiums?
We’re here to help you understand your options.
If your life insurance premiums have become difficult to manage, we can help you review your policy and better understand the choices that may be available before you make a final decision.
Sometimes the most important step is simply finding out what your policy is worth and what options you have before letting it go.
Life settlement eligibility and offers are not guaranteed and are subject to applicable laws and regulations. Policy loans, withdrawals, reductions, surrender, or sale may affect coverage, taxes, estate planning, and eligibility for certain public benefits. Consider consulting with your insurance company and appropriate tax, legal, or financial professionals before making changes to your coverage.