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What makes people lapse on life insurance payments?
Learn five common reasons people lapse on their life insurance payments and what you can do to avoid lapsing on yours.
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.
In this article:
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.
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.
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.
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
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.
About Joshua RodriguezRead more by Joshua Rodriguez
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus
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