We usually begin life insurance on a positive note. We have objectives, and we are fulfilling a need for security with regard to family and the future. All well and good. But as time goes by, life happens and the life insurance policy can become an onerous commitment, or lost in the complexities of events that can overcome us, even through no fault of our own. Either way, losing or leaving policies behind on the rocky road of experience is something that is fairly common. And it’s not good.
A lapse of concentration
- A life insurance policy will lapse when premium payments are missed and the cash surrender value is exhausted. No death claim payments will be made if an insured person passes away, no policy changes can be made, and there is no cash surrender valueat this point. You and your family members who are insured under the policy are no longer eligible for insurance coverage or death benefits.
- If you let your policy lapse – either deliberately or through circumstances you can’t control, it means that you have missed a number of premium payments. The term lapse refers to a “lapse in coverage”, meaning the life insurance contract will no longer pay a death benefit or provide any insurance coverage for the insured person. However, a grace period is allowed for clients to get their act back together, and you may reinstate your policy after a specific period of time, usually 30 days during which the insurance policy will still provide coverage and make a full payout if the insured dies.
- Once a life insurance policy lapses the life insurance company is not under any legal obligation to pay the beneficiaries if an insured person passes away.
- So should you wish to have your policy reinstated, you need to act quickly. Contact your agent as quickly as possible, or call your life insurance company. They will advise you with regard to the payments you need to make, and the ways that you can make payment.
- A further limited grace period may last six months or two years, wherein you will have a window within which you can revive a lapsed policy by paying all the missed premiums and accumulated interest on them.
- At this point, you may be required to answer health questions, and attest that no material changes in health have occurred since the policy was underwritten. Best to be truthful with this information, because if you’re caught lying during the claims process, your claim can be refused, or your beneficiaries to forgo the benefits they were expecting.
- The underwriting process may uncover more about a person’s health than they ever knew, for better or worse. Therefore avoiding underwriting whenever possible will lead to lower insurance premiums. After six months you will most likely be asked to undergo fresh medical checks, and your insurance provider at this point has the right to change the terms of the contract or increase your premium.
- Renewing a lapsed policy will likely cost you less than taking out a new one. Being forced to take out a new life insurance policy rather than reinstatement will always be more expensive than the old policy because you will have grown older, and age is a big factor in price with regard to life insurance. In addition, you will have to forfeit the premiums you have already paid on a lapsed policy, which is money wasted.
- After a policy has lapsed, a larger payment must be made to reinstate the policy. That’s why it is in your best interest to never let a policy lapse. This payment is a penalty of sorts, and may cover a few months’ premiums.
- The best way to avoid a lapse is to always make premium payments on time. Therefore all companies will offer to set up a debit order to ensure that you pay your premiums, and pay them on time. Sometimes a lapse can occur if even one payment is overlooked. This error can be devastating, as a policyholder might lose a policy that can’t be replaced if his age or health has changed since the initial purchase. Never ignore your life insurance policy. Review it annually on an ongoing basis.
Whole Life and Term Life
- Sadly, too many people lose their money in life insurance simply because they are not concentrating; forgetfulness; buying more coverage than you can afford; not understanding your needs and how to make the most valuable and sustainable choices.
- For instance, many people take out Term insurance (to last a specified amount of time). They do this in case they die before a bond is paid off, or before their children have completed their education. However, when the Term policy ends, many leave the policy to die away, along with all those premiums paid over the years. Instead, with a quick phone call to their agent, they can convert the policy to Whole Life Insurance policy rather than allowing all that investment to be lost. Even if you live to 110, whole life pays a death benefit.
- Whole life insurance policies will generally take the cost of insurance in cash value in some way if a premium payment is missed. While this can ease the burden for clients during times when it is not possible to make payments into the policy, clients must stay on top of the policy worth. If the value slips near zero and there are not sufficient funds to cover the cost of life insurance, the policy will lapse.
- Term life insurance has no cash value. Therefore when a premium payment is missed, the policy will immediately go into a grace period, and then lapse after the prescribed amount of time. Never miss payments with a term life insurance policy because once it lapses, and you miss the grace period, you may be losing rather a lot of money, along with the coverage that your beneficiaries should have enjoyed.
Check your policies, check your life
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With Verifi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.
To find out more, please visit: www.verifi.co.za