Whether you’re the primary breadwinner, a divorcee, a homeowner, an empty nester, or a retiree, you need life insurance. But what happens if you can’t afford a policy? Keep reading to find out.
Life insurance can be expensive—but it’s also important to own. Especially if you have expenses that will continue to haunt your beneficiaries after you pass away.
Think about funeral expenses, death taxes, mortgage payments, debts, and more. You don’t want your family to be stuck with the financial burden of your death.
So if you don’t have life insurance, or assume you can’t afford it, think again. There are plenty of ways to afford it, no matter your financial situation.
What happens when you can’t afford your life insurance payments? This depends on the type of policy you hold.
This policy covers you for a period of time, such as 10, 20, or 30 years. Pass away within that period and your beneficiaries can cash out your policy. Don’t pass away during that time and no one receives anything.
And if you stop paying your premiums, your coverage will lapse and you and your beneficiaries will be left with nothing. Thankfully, there are a few alternatives.
If you own a whole life policy, the consequences for not paying your premiums are less detrimental to your bank account.
Can’t pay your premiums on time? The Insurance Information Institute (III) suggests you:
Want to prevent your coverage from lapsing in the first place? Here are a few tips.
Want to ensure you’ll never miss an insurance payment? Try reducing the face value (death benefits) of your policy. “If you can reduce the face value to a point where the payment is acceptable, problem solved,” says Anthony Martin, owner and CEO of Choice Mutual.
He also says “this will inherently reduce your monthly premiums.” And reducing your premiums will reduce your deductible.
The downside is the lump sum paid out to your beneficiaries won’t be as much because of the reduced face value. But the upside is you’ll actually be able to pay your premiums each month.
If you’re looking to save some cash, transfer your whole life policy to a term one. The premiums will be less expensive, and you can choose whether to pay annually, quarterly, or monthly.
Should you want to stick with a permanent life policy, consider transferring your whole life policy to a universal one.
A universal policy is similar to a whole life policy in that it covers you until you die. However, a universal policy’s premium payments and face value are much more flexible. You’ll be able to adjust your premiums, how often you pay them, and the amount of coverage. The premiums are also often deducted from the cash value of the account.
Just be aware that a universal policy can be time-consuming to maintain, and there are many nuances involved. Talk with your insurer before switching.
If you’re worried a disability could prevent you from paying your premiums in the future, consider purchasing a WOP rider. This will cover the cost of your premiums for the period of time you are on disability.
Keep in mind that by purchasing a WOP rider, you’ll add around 25 percent or more to your monthly premiums.
Did you have a pre-existing condition that caused your rates to spike when you first got your life insurance policy? And has the condition subsided since? For example, maybe your cancer went into remission or you quit smoking?
If so, you may apply for a reconsideration of health classification. Depending on whether or not your application gets approved, you could receive lower and more affordable rates on your life insurance policy.
“There are many scenarios where improving health can give someone the opportunity to qualify for a better rating with a new company, which results in lower payments,” Martin says.
So whether you’re applying with the same company or new one, you’re almost guaranteed to find cheaper rates than when you first applied for a policy.
Under this policy, you pay the premiums through the cash value of the whole life policy. This is to prevent the policy from lapsing if you can’t afford to pay for it. The downside is this reduces the face value of the policy.
This is also known as a life settlement. And according to the Life Insurance Settlement Association, “A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit.”
So the third-party recipient pays all future premiums and receives the death benefits when the insured dies.
It’s great for people who can no longer afford their insurance premiums. Yet, most insurers will only let people over the age of 65 and those whose policy has accumulated enough face value to sell their policies.
Q: What should I do if I want life insurance but can’t afford it?
A: Well, there are a few options. Here are a handful:
Q: What are some of the reasons why you wouldn’t be able to afford life insurance?
A: If you smoke, have a pre-existing condition, or health issues, you will find your life insurance rates to be much higher than the average person.
Life insurers determine rates based on your risk profile. They don’t want you to die, because then they’ll have to pay out your life policy to your beneficiaries. So to compensate for the high risk you pose, they raise your rates.
When applying for life insurance, insurers will place you in a category based on your health. From most ideal to least, the categories are:
If you have health issues or are an extremely risky individual, you’ll get a table rating. This tacks on an extra percentage to your original premiums.
Should you fall into one of the not-so-ideal categories, shop around and get quotes from multiple companies until you find the most affordable rates.
Q: What else can I do to make life insurance more affordable?
A: Besides the tips listed above, Martin says to ask yourself which luxuries you can live without. “Figure out how you can cut out all the non-essentials, and hopefully you can afford to pay for your life insurance so your family isn't dead broke if something happens to you.”
He also says to “get a piece of paper out and write down all your expenses. Identify which costs are essential (rent/mortgage, food, utilities, phone), and which are non-essential (nights out, Starbucks, movies).”
Take into account all the expenditures you can drop before considering cutting your life policy. Chances are, there’s a lot you can eliminate.
QuoteWizard.com LLC has made every effort to ensure that the information on this site is correct, but we cannot guarantee that it is free of inaccuracies, errors, or omissions. All content and services provided on or through this site are provided "as is" and "as available" for use. QuoteWizard.com LLC makes no representations or warranties of any kind, express or implied, as to the operation of this site or to the information, content, materials, or products included on this site. You expressly agree that your use of this site is at your sole risk.