What makes people lapse on life insurance payments?

We all know the reasons you should consider getting life insurance: If you have people who depend on you financially, it can be an important way of providing financial protection in case the worst should happen to you.

But getting life insurance is just the first step. It’s also important that you keep it.

The current lapse rate for term-life products is about 10.2%, according to a joint study by the life insurance trade association and the Society of Actuaries (SOA). That means just over 1 in 10 people lost their term life plans due to missed payments. And if you miss too many payments, your policy will typically be canceled, and no refunds will be issued. That means your beneficiaries will not receive a death benefit, which is obviously less than ideal.

Let’s learn why people fail to pay premiums on their life insurance policy.

Why do people lapse on life insurance payments?

Tough financial situations often push people into lapsing on their life insurance. Below are some of the most common reasons for missed payments.

Loss of income

If your employer reduces your hours, or gets rid of your position completely, you might lose the financial resources you need to make regular life insurance premium payments.

Unexpected increase in expenses

It’s a fact of life that unexpected expenses happen all the time. Bad weather strikes your home. Surprise car repairs. Your dryer or washing machine suddenly decides to stop working.

If you don’t have enough money to pay for surprise expenses, you might look to other options for covering the cost — including repurposing the money you had been using to pay for your life insurance policy.

Health Issues

After a difficult diagnosis, you might not be able to work for months, years, or worse, the rest of your life.

On top of the inability to work (and therefore earn a salary), health issues typically come with mounting expenses.

For this reason, a waiver of premium rider is available on most life insurance policies. This rider makes it so that you don’t have to pay your life insurance premiums if you become disabled during your coverage period. It’s typically offered during the application process, and can cost between 15 and 25 percent of your monthly insurance premium.

FYI: Haven Life offers the waiver of premium rider as an optional add-on for certain states in the Haven Term insurance application process.

Being overinsured

This might sound strange coming from someone in life insurance, but it’s entirely possible for someone to buy too much life insurance.

Most experts recommend getting coverage worth five to ten times your annual salary. If you get more than that, you might have a policy worth more than your family actually needs — and the more life insurance coverage you have, the higher your life insurance premiums will be.

And if the price of your policy is so high you can no longer pay it, your policy will lapse — leaving your loved ones with no coverage at all.

Human error

While most modern policies will include some sort of autopay feature for your life insurance premiums, some people will either forget to set it up or make an error during that process. Or you might forget to update your payment details if you get a new credit card.

And some people with older policies might not have taken advantage of autopay, leaving them vulnerable to the possibility of missing a payment out of sheer forgetfulness.

How to avoid missing life insurance policy payments

Here are some ways to prevent missing a payment:

• Enroll in autopay, and make sure your payment information is kept up to date
• Get a waiver of premium rider, if available
• Cut back on coverage
• Create a budget with an emergency fund that can help you get through a temporary financial setback

Final Thoughts

Life insurance coverage is crucial to help protect your loved ones if something happens to you. If you’ve secured that coverage, it’s important to take the steps above to avoid lapses in coverage that could leave your loved ones with little support.

At Haven Life, we understand that life happens. If you miss a payment, you will have a 31-day grace period, during which you can make up the missed payment without having to pay interest or experiencing a lapse in coverage.

If you don’t have term life insurance coverage, start your journey by getting a free life insurance quote today.