Policyholders may intend to pay the life insurance bill, but many have had their finances hit unexpectedly by the pandemic. A policy that once was affordable might seem like a liability if you have lost a job or have had a business go under. Ditching that policy, though, can be even more disastrous if someone would need the payout if you pass away.

Fortunately, with permanent life insurance policies, you do have several options to pay your life insurance bill and keep it up to date if you’re having trouble making premium payments.

Take Advantage of the Payment Grace Period

Most insurance companies give policyholders a 30-day grace period from when the premium is due to pay it. Typically, you can go another 30 days without paying, and the policy will be in “lapse pending” status. Any policyholder facing temporary hardship is able to take advantage of this months-long break on payments.

Managing Finances During COVID-19

Some insurance companies are offering grace periods that are even more lenient because of the coronavirus, and some states are requiring insurers to offer more flexibility for payments. Call your insurer to find out how long your policy will remain in force if you don’t pay a life insurance bill. Ask for an in-force illustration to see what the impact of not paying will have on your policy and how much you’ll have to pay going forward to make up the difference.

Use Your Waiver of Premium Rider

You might be able to skip payments but continue your insurance benefits if you have a waiver of premium rider. Typically, the waiver kicks in if you’re unable to pay the premium because of a disability. However, some riders even waive premiums for unemployment. There’s typically a waiting period, though, before the waiver rider kicks in, during which time you’ll have to continue making payments. So this option won’t be ideal if you need immediate financial relief.

Use Dividends to Pay Premiums

If you have a whole life insurance policy, you might be receiving dividends. Mutual insurance companies pay out dividends to policyholders in years when the companies are performing well. Dividends can be used to increase your cash value. They also can be used to offset premiums. This will reduce the amount you need to pay out-of-pocket for the policy, but you need to check with the insurance company to find out how dividends are applied to premiums. The benefit you get might not be immediate. For example, MassMutual dividends can be used to reduce the following year’s premiums. Prudential states that dividends are credited on your policy anniversary, so only that bill is reduced.

Use the Cash Value to Pay the Life Insurance Bill

One of the benefits of permanent life insurance is that it builds up cash value. There are a variety of ways you can use the cash value to pay premiums. If you’ve had the policy for several years, you might have built up enough cash value to cover some payments. Whitman recommends ordering an inforce illustration to see what impact using the cash value to cover premiums will have on the overall value of your policy.

Use the Paid-Up Option

You also might be able to use the cash value to convert your policy to paid-up status. This will allow you to keep some coverage in place without paying additional premiums. However, this maneuver will also likely reduce the death benefit paid to beneficiaries. The older someone is, the better this option is because they’ve had more time to build up cash value. (Source: Forbes.com)

Want to talk this through? Contact us at the Ziff Agency.