You have been approved
for the term life
insurance plan you wanted at the rate
you wanted. Now what?
Well...you're responsibility is to pay
the premium in order to keep the policy
in force. This is called
guaranteed renewable
term life and regardless of
health status, your premium payment is
all that is needed to keep the plan
viable. There are various payment
options available so let's take a look
at how best to make sure your term life
plan is safe and secured.
We
get a type of call from clients and prospects
unfortunately more often than we like.
Someone had a life insurance policy in
force but missed the payment and it
lapsed. We want to avoid
this situation at all costs for a few
reasons. The first is that we will
not have protection from when this
policy lapsed and a new will start.
This also assumes that you are in good
health and can
qualify for new term life
insurance based on health. The
biggest issue is the fact that term life
insurance rates are based on your age at
the time of enrollment. Just a
hint...the rate goes up as you get older
and this difference can be significant.
So for all these reasons, we do not want
to lapse a life insurance policy.
What's are best protection?
The
payment option is our first line
defense. This may be different for
everyone but automatic payments have
showed the best result in terms of
avoiding lapsed payments. This is
pretty obvious why. Many times
with lapsed policies, a person has moved
and/or the mailed payment did not reach
them for whatever reason. Keep in
mind that there are different
installments you can pay for life insurance
and we'll talk about the important of
those options later. If you are
paying a policy annually, the gap
between billings can be an issue with
mailed payments. Your forwarding
of mail may cancel before the next
payment. Not many payments are
paid at such large time intervals so it
may not register to you when you run
through the various bills you need to
notify of an address change. An
automatic bank withdrawal or credit card
helps to avoid this. Even when a
bank account or credit card account
changes, you usually get notification
that a payment was attempted and failed
and this cues you to address the
payment.
As we
referred to in the prior paragraph,
there are different installments of
payment you can make for your term life
policy. Ultimately, most life
insurance policies are thought of as
annual payment cycles. Most
carriers offer multiple alternatives to
one annual payment. Keep in mind
that life insurance is a pre-payment
policy which means you are paying now
for the next period of time. The
most common alternative payment cycles are
bi-annually, quarterly, and monthly.
There is a cost to using one of these
alternatives however. Think of
this way. If a policy is $1200
annually (to make it easy) and you pay
monthly, the carrier will essentially
charge you a fee (or interest) for the
unpaid amount. For example, you
pay the 1st month's premium, the carrier
figures interest on the 11/12ths of the
annually premium and so on. The
total of this interest is then added to
the annual premium amount and then
divided by 12. You are essentially
paying the interest the carrier expected
to earn off the premium during the
course of that year. therefore,
monthly will slightly be more expensive
than quarterly which is slightly more
expensive than bi-annually which is
slightly more expensive than the annual
payment. There are even policies
where you can pay longer periods of
times for a discount and even policies
where you can pay the full amount of
premium expected during the entire term.
These are less common and also less
popular due to the larger layout of
money up front.
Ultimately, a term life policy owner
needs to choose the payment option that
best fits their budget and means to pay
since avoiding lapse of a
term
insurance policy is the primary concern.
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