Paying For Life Insurance
Having life insurance may be part of your long-term financial planning, and if you already have coverage to help secure your loved ones’ future, good for you! Sometimes, it can be difficult to understand the ins and outs of your life insurance policy — like your options for paying premiums — but we’re here to clear up any confusion. Let’s take a closer look at how paying for life insurance works.
How Long Do I Pay For Term Life Insurance?
When you have term life insurance, otherwise known as temporary life insurance, you’ll pay a premium for a specific period of time, which may be something like 10, 20 or 30 years. You’ll choose the term limit when you buy the policy and your beneficiaries will only receive the death benefit if you pass away while the policy is active.
After your initial policy term, you might have the option to extend the number of years on the term, depending on your contract, without having to take a medical exam. However, because your original rate was guaranteed only for the original term of your policy, your premium rate will be higher when extending coverage past the initial term given your increased age. Typically, this rate will increase each year after the original policy term has expired.
You also might have the opportunity to convert your term life coverage to permanent coverage during a specified period of time, which has many advantages. Here’s a few reasons to convert your term life insurance to whole life insurance.
What happens if you don’t pay your premium? When you don’t pay your premium for a term life insurance policy, your coverage will lapse — meaning you will no longer be covered and, in the event of a death, your beneficiary will not be paid the death benefit. Typically, a life insurance company offers a grace period, which is the amount of time you have past the due date to pay your premium. If you pay within the grace period, your coverage can stay in force and you won’t have to reapply for life insurance.
How Long Do I Pay For Whole Life Insurance?
Whole life insurance provides a set amount of coverage that lasts for your entire life. Your premiums stay the same for the entire length of your payment period and you choose the payment period that makes the most sense for you – which may be something like 10, 20 or 30 years, to a certain age, or even for the full life of the policy. And as long as you make all of the necessary payments and follow other policy terms, your beneficiaries will receive the death benefit whenever you pass away.
There are a variety of payment terms to choose from. Some of those choices might include:
- Pay the premium at a set rate for as long as you live
- Pay the premium for a certain number of years, such as 30 years or until you reach retirement age. Keep in mind, you’ll pay higher premiums than if they were spread out throughout your lifetime, but you’ll still be insured for life.
- Pay for the whole life insurance policy in one lump sum.
What happens if you don’t pay your premium? If you don’t pay your whole life insurance premium by the end of the grace period, there are a couple of things you can do. First, if you still want your life insurance coverage, see if you can reinstate your policy, although you will need to qualify medically and pay all back premiums due first. You could also surrender the policy, which means you can stop paying the premiums and collect the accumulated surrender value. However, choosing this route means you will no longer be covered by life insurance and there could be tax implications. Another option is a “reduced paid-up policy”, which uses the built-up cash value in a policy to purchase a policy with a lower death benefit, with no more premiums needed. This could be a great way to keep some life insurance coverage if you can no longer make premium payments. Finally, extended term life insurance may allow you to use the cash value in the whole life policy to purchase a term life policy. The face amount stays the same and the duration of the term policy is driven by the amount of cash value (the larger the cash value, the longer the term duration).
Can I Use a Credit Card to Pay My Life Insurance Premium?
Some companies may allow you to use a credit card to make life insurance payments. Check with your insurer to verify whether you can use a credit card to make payments.