Take Care Your Insurance Before Lapsing

An all-too-common occurrence for life insurance policy holders is one in which someone purchased a life insurance policy several years ago, they have been paying premiums faithfully, and they unexpectedly receive a Lapse Notice. The Notice states, “… your premium is not enough to cover the policy expenses, please submit (a lot more) money to keep your valuable coverage.”

You’ll probably look to the insurer or agent for help. Here are some things you should consider to maintain your valuable coverage.

Often the policy owner thinks of life insurance the same way they think of auto insurance. They receive a premium notice, they pay the premium amount stated on the notice, and they believe they have met their requirement to secure the coverage. What they don’t realize is that with life insurance plans, such as universal life, indexed life, whole life and variable life, the premium is not the same as the cost.

Premium is what you pay to the insurance company. The policy fees are the cost of the coverage.

With these policies as the insured gets older the life insurance policy costs more. This is where the trouble usually happens. At some point in time, and often unbeknownst to the policy owner, the policy expenses exceed the premium being paid. This triggers a feature in the policy which allows the insurer to take money from the policy’s cash value, without having to notify the policy owner, to make-up any shortage of policy expenses. As this event occurs every month, the life insurance policy will be depleted of its cash value and move towards a lapse.

Before a life insurance policy lapse, the insurer is obligated to mail a lapse notice which allows the policy owner 31 days to pay enough premium to cover one month’s worth of expenses. The problem however, is that the expenses will typically have greatly exceeded the amount of premium the owner had been paying.

It’s common for the new premium to be three or four, or even more, times as much as they had been paying. This can put the cost of coverage out of their financial reach. The increase in premiums may not be justified, and a life insurance expert should evaluate the policy to determine if you’re being over-charged.

One thing you can do to make sure you aren’t caught off guard by increasing policy fees, and lose your valuable coverage, is to review your policy with an agent every year. In this meeting you should bring a recent Annual Statement for the policy and the agent should bring in-force illustrations. These are the tools that will best inform you of the policy’s expenses and where your premium amounts should be set for the year.

If you’ve received a lapse notice for your life insurance policy, here are a few things you can do:

1. Lower the death benefit to an affordable amount. The lower the death benefit the lower the premium will be.

2. Ask the insurer for the cost to keep the policy in-force to an age less than maturity. In other words, a universal life insurance policy, as one example, will stay in-force until the insured’s age 100. Fees are set based on this age assumption — 100. If you tell the insurer you only want the policy to stay in-force to age 86 (for example), the premium required will be less.

3. Ask the insurer if they offer a less expensive insurance product that you can exchange your policy for.

4. Get the assistance of a qualified agent to help you understand and make decisions about your policy.

5. Have a life insurance analyst review the policy, past payments and future payments to determine if you’re being over-charged for the coverage.

Things You Should Know Before Take Insurance

There is a defined moment when many of us start to consider getting life insurance to protect family members and loved ones. It could be after a child birth or a catchy insurance commercial that tweaks your interest. When this moment strikes, the first thing most people do is get a quick online quote to understand their ballpark rates. A more detailed assessment follows afterwards. Some elements of this assessment are intuitive (age, health condition, smoking status, occupation, etc.). There are, however, some other surprising assessment criteria that underwriters also consider. Such as…

    1. Driving History: Yes, your driving history matters, not only for your auto insurance premiums but also your life insurance rates. If you had a DUI accident in the recent past, you will likely experience significant higher quoted rates than somebody who has a clean driving history. Remember that smaller offenses fall off your driving record after three years (for insurance purposes).

 

    1. Be Happy: Having a history of depression can hijack your life insurance premiums, almost doubling them. Happy people experience less health issues and stress, and thus represent lower risk for insurance companies.

 

    1. Policy Date: The policy’s starting date can be sometimes adjusted (also called backdating), meaning that in some cases you can benefit from lower premiums (based on your younger age; if you turned 50 this week but backdate your policy to last month, for example). Obviously you will need to pay all the premiums starting from the backdated time point, but you can benefit from a lower rate going forward.

 

    1. Dangerous jobs (e.g. stuntmen, bomb squad member) can mean higher risk for your life and thus lead to higher insurance premiums. Do you think that your job is dangerous?

 

    1. Payment frequency: Paying for a life insurance policy on an annual basis saves insurers administrative costs, and they reward you with lower premiums than if you’d paid for your insurance monthly. In this case, though, you’d need to plan carefully because a big annual charge can create a significant hole in your household budget if you forget about the annual premium.

 

    1. Travelling (to dangerous destinations): Some destinations are more dangerous than others and some are very dangerous (war zones, areas with known history of kidnapping, etc.) Consult an insurance broker or your agent to understand how your future plans can impact your insurance coverage. Your policy can be declined or you might be able to get a life insurance policy, but it would explicitly exclude the time you are abroad. In some cases, a simplified issue no medical life insurance policy is a solution since it does not ask travel questions. It is important to know, though, that a simplified issue policy is more expensive than a standard one and its coverage is typically limited to $50,000 – $300,000. You can test this out by getting an anonymous simplified issue no medical life insurance quote via one of numerous insurance online platforms.

 

    1. Sports (extreme): Being involved in extreme and/or dangerous sports, especially professionally, can impact your life insurance premiums (for example: sky diving, cliff diving, scuba diving). Similarly to getting insurance while travelling to dangerous locations, you need to understand which cases are not covered by your life insurance policy.

 

    1. Private pilot licenses: This one usually falls into a category of dangerous hobbies – licenced pilots (only private) might experience higher insurance rates. When calculating insurance premiums, an insurer will consider both the pilot’s age and experience. This information will probably not asked during the initial quoting process, but will be required during the detailed assessment later.

 

    1. Your citizenship: If you are not a Canadian citizen or resident, you will not be able to apply for a Canadian life insurance policy.

 

  1. Your income: Insurance companies can decline your life insurance policy if your household income falls below a particular threshold, typically $30,000. The reasoning behind this is so insurance does not stretch your budget beyond its capabilities. Note that you should still speak with a broker to create a detailed future plan for insurance protection, and brokers that are also financial planners can help you triage your upcoming financial expenses to best manage your needs. It’s a good idea to check with your insurance broker, if your income might be an issue, before submitting your application. Remember, that once you have been declined for a life insurance application, it may impact your next applications since some insurers include in their surveys, “have you ever been declined for a life insurance application?” Similarly to a pilot license, this question might be not be included in initial quote questions, but will be asked later by your insurer.

As you can see, many aspects outside of your health impact your life insurance quote and policy. You should remember that underwriting rules (application assessment) are different across insurers and thus, it is advisable to work with an insurance broker who deals with numerous life insurance companies and can share his/her expertise with you as you navigate through this complex process.

 

The Good Things About Insurance

There are several considerations and benefits to choosing a whole life insurance policy over other different types of life insurance policies. With so many options in the insurance marketplace, it is certainly confusing to choose the best insurance plan for you. However, here are a few advantages of whole life insurance plans to help you decide why this might be the right one for you.

Benefits of Whole Life Insurance

• Lifelong Insurance Coverage: The term whole life insurance is no misnomer! As the name implies, whole life insurance plans are designed to provide insurance coverage for your whole life, unlike term insurance policies, which only offer coverage for a specified period of time.

• Fixed Insurance Premiums: Premiums for other types of insurance policies generally increase over time to reflect the rising cost of protecting older policyholders. But for whole-life insurance policies, insurers average the entire cost so that you pay a predictable and level premium throughout your time. Having a fixed insurance premium can be easier for people to plan around the budget.

• Cash Value: One of the distinguishing features of a whole life insurance policy is “cash value”. It means that the insurance premiums you pay towards your plan accumulate in a cash balance that you can use even when you are still alive! If you do decide to discontinue paying your premiums, your insurance plan may still be worth something to you. This, however, depends on how much cash has accumulated. On the contrary, term insurance premiums (pure insurance policies) only pay out upon a death.

• Encourages Savings: For those who require additional encouragement, paying a compulsory policy premium forces them to set aside cash that can be used at a later date.

• Flexible Money Options: The accrual nature of your whole life insurance plans will offer you several flexible options in the future – should you decide to discontinue paying premiums. There may be a waiting period before you can borrow against your cash value. You can also opt to stop paying new premiums, and stretch your accumulated cash value and existing premiums towards a reduced benefit protection.

• Possible Dividends: If you have a participating whole life insurance policy, you can receive dividends from your company. However, they’re not guaranteed and are only paid out when your agency has excess investment earnings, favorable mortality statistics, or savings on expenses. You can choose how you want the dividends to be used: reduce your premium payments, paid out in cash, accumulate interest, or pay for paid up Additional insurance.

• Tax Deferrals: There are added tax benefits of whole insurance policies. The growth of interest in whole life policy is tax-deferred! In addition, if you have a basic participating policy, any dividends you receive will be considered a return of premium. They will not be taxed for until your total dividends exceed your total premiums.

• Certain Death Benefit: Policy holders are usually guaranteed a death benefit no matter when the holder dies, so long as the plan is active. This assumes the plan wasn’t surrendered, and that premiums were continued. In comparison, under term insurance policies, beneficiaries only receive a benefit if the policy holder passes away within the period covered.

Use the above points to determine if whole life plans are suitable for you and make the right choice!

 

Tips To Find Life Insurance Company

Ratings on Companies

Many people wonder how to go about choosing a life insurance company. In truth, there are several factors that can determine one’s decisions to pick one company over another. More often than not, the deciding factor comes down to the price of the monthly premium.

The premium needs to be affordable enough for one to pay it off each month without it making a huge dent in their finances. A good life insurance company does not want to bankrupt their clients with each premium – quite the contrary in fact.

Insurance companies want to keep their clients as happy paying customers so that they actually have a business to run. If there is no one paying the premiums, then there is nobody to insure.

Thus, life insurance companies will do everything they can to convince a prospective customer that they are the best possible choice.

Be Wary of Life Insurance Scams

However, keep in mind that companies that bend over backwards and offers great premiums may not actually looking out for one’s best interest. In order to avoid scams, read the fine print of their policies. Will loved ones receive the policy without due? Does it take a while for a claim to be filed? One should read reviews and comparisons of life insurance companies in order to weed out the bad ones. This will be easy to find because insurance companies are not like other holders as they are regulated by each state via a special commission. Thus, finding the truth about a company is actually quite easy. One can trust the sources and reviews found through the commission because they are an unbiased organization that was created to help people looking for life insurance policies.

The records are public, but it helps to understand how to read them in order to understand the reports. If a company looks like it has many issues, then one should also look at the number of claims it has handled. If the number is relatively low compared to the overall claims, then the chances are it is not a scam company.

The insurance commission is designed to help weed out bad companies that just exist to take advantage of people during delicate situations. There is no need for anyone to worry about picking a company that is fraudulent because most likely it will not happen. One just needs to trust their instinct.

Now, What is Next?

In conclusion, finding a life insurance policy that is both affordable and comprehensive is not so difficult after all. As long as one researches their top choices and considers them carefully, then there is nothing that they should worry about. A good life insurance company will not take one’s family for a ride should the need ever arise to make a claim. People can rest easy knowing that their family is well taken care of should anything ever happen to them. However, one should not worry about that as life still needs to be lived!