In our current economic climate, this has become a common question asked by a growing number of life insurance policyholders. This has been exacerbated by the mortgage crisis, which has pushed an alarming amount of homeowners to the point of foreclosure.

According to the Mortgage Bankers Association, since the beginning of this year the number of home loans that were 30 days behind in payments jumped to 6.35 percent, equating to 2.9 million loans.

If you can’t pay your mortgage, there are probably many other bills you can’t pay either. And if one of them is your life insurance premium, what should you do?

The answer isn’t simple because of the many different types of life insurance products available. The first thing you should consider is contacting the issuer of your life insurance policy and ask them to explain your options and their consequences.

If you have one of the most common life insurance products, the Insurance Information Institute has some general information. For example:


Term Life Insurance: If you stop paying premiums, your coverage lapses.

Permanent Life Insurance: If you have this type of policy, you will have the following choices:

  • Cash out the policy. This means that you can stop paying the premium and collect the available cash savings. You will no longer be covered by life insurance, but you will at least save some of the proceeds of the policy. You may, however, have to pay taxes on some of the cash value if the sum exceeds what you have paid in premiums.
  • Non-forfeiture options. There may be a “reduced paid-up” option. This means that you can stop paying premiums completely in return for a reduced death benefit and no cash saving. You may also be able to convert the permanent policy to an extended term policy for a time period based on the accumulated cash savings in the policy.
  • The Policy will lapse. If this happens, see if the policy can be reinstated. Some insurers may allow this if you do it within five years of lapsing. You will most likely have to pass a physical examination for the reinstated policy and pay back the premiums you would have paid plus interest. Annual premiums for the reinstated policy may be lower than those for a new, comparable policy.

Remember: These options are very general, but they give you an idea of what you may hear from your life insurance issuer if you contact them because you’re unable to pay your insurance premium.

Kawika, Garden State Life Insurance

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