Does the term « lapse » mean anything to you? In an insurance context, the term refers to a life insurance policy that has been cancelled because the premium is no longer being paid. Here are 3 tips to avoid this happening to you :
Always make sure to pay your insurance premium
A life insurance policy must be paid on a regular basis, either monthly or annually. Usually, the premium is payable on a specific date, but an additional 30 or 31 days may be granted without penalty. This is called a grace period.
However, if the policy owner fails to pay the premium by the end of the grace period, the policy lapses. The person is then no longer covered and their previous payments are lost. Policies can be reinstated, but nothing is guaranteed. The insurer is the one who decides whether to accept or refuse reinstatement.
To keep your insurance policy from lapsing, it’s very important to always pay your premium on time. Whether it’s payable monthly or annually, make sure you have the necessary funds in your account or that you mail your cheque. One way to reduce your risk of forgetting is to proceed by automatic bank transfer—a payment method accepted by most companies—but even that is not completely risk free.
If you have universal life insurance (see our other article for more on universal life insurance), your insurance can also be paid for through life insurance investments. It is important to remember, however, that if these are fully used to pay the insurance premium to the exclusion of other methods of payment, the insurance will lapse.
Notify family about life insurance
One of the reasons why some insurance policies are defaulted on or left to lapse is because they have been forgotten. You may fail to notify your insurer that you have moved or changed email addresses and, as a result, no longer receive communications on your policy. An insured may also be declared unfit, and the designated agent may not be aware of the insurance.
It is therefore essential that you inform family or someone close that you have insurance. Also provide them with a copy of the policy or advise them where to find your important paperwork should they ever need it.
Identify your needs when purchasing life insurance
While missed payments are one of the reasons why life insurance may lapse, another is that people just give up on their policy. After a certain number of years, a person’s situation may change, along with their continued need for insurance. If this is your case, rather than just stopping your life insurance payments, we recommend that you contact your financial security advisor to reassess your needs. As an expert in the matter, the advisor will guide you and ensure that you are appropriately insured. Remember that if you give up on your policy, the premiums you paid in past years will not be refunded.
One way to avoid finding yourself in such a situation is to carefully assess your needs when purchasing life insurance. Can keep your insurance for life, and it will match your needs whether they remain stable or evolve. Again, working with an experienced financial consultant like those at Matcha Insurance is a good idea. If you don’t have a financial advisor, our article How to Choose a Financial Advisor is for you!