A lapse in a life insurance policy signifies a period when the policy will not pay out a death benefit due to missed premiums. Missing a premium or two will not automatically result in a cessation of coverage. Sometimes, if a policy has a cash account associated with it, the money in the account will go towards the premiums for as long as needed. Matured life insurance policies may not require any further payments. However, it is up to you to understand what lapse procedures may be put in place if you stop paying your premiums. Here 's a look at how life insurance lapses can affect your policy.
Most life insurance policies have a grace period that prevents your policy from being terminated because of one or two missed payments. When you purchase a life insurance policy, you will have to choose the option to have the cash account used as a backup if a premium isn't paid on time. The policy will only remain in place for as long as the cash-value account can pay for the premiums. The policy will lapse once it runs out, and you will lose your coverage. If a lapse in coverage does occur, you may have the option to pay the missed premiums with interest. Once all the payments have been caught up, your policy will be reinstated. Be aware that your premiums will more than likely increase if this occurs.
Read: 5 essential tips to get started with life insuranceLapses occur for many reasons, which may indicate how satisfied or dissatisfied someone is with their policy. The lower the lapse ratio, the less likely it is that the policy owners were dissatisfied with their policy and the customer service provided by the agents who assisted them.
On the other side, if a policy is no longer needed, allowing it to lapse is common. This is true if a person takes out a term policy to cover a large loan such as a mortgage or other financial obligation. If the loan is paid off, there is no need to maintain the term life insurance policy.
The longer a life insurance remains in place without lapsing, the more it will be worth when it finally matures. While the death benefit may remain the same, it is the interest earned over the life of a policy that will account for the most money. Anytime that a policy is allowed to lapse, it affects the amount of money you receive when the death benefit is paid out. While a lapse can sometimes occur, it's in your best interest to maintain your premiums so that your policy remains intact until it reaches its maturity.
Read: Commonly overlooked features of life insurance policiesLife insurance can be confusing and frustrating, so we often underestimate its value. Unfortunately, there are times that people let it lapse only to realize how difficult life may be without it. Before letting your life insurance lapse, take a few minutes and call the agents at Kneller Insurance Agency. They have the answers to many people 's questions about life insurance, including what happens if it is allowed to lapse. Call our office today and speak with our experienced insurance professionals. They can go over your policy and recommend any necessary changes that will enable you to keep your policy in place.
