Lapsed Life Insurance by Lorena Bortz

In 2019, Kenneth was diagnosed with cancer and received chemo treatments for many months until he surrendered to his disease in June 2020, leaving his wife, Betty, and their two grown children.

Kenneth had been a military man who ruled his house like he ruled his troops, with a firm hand. In the months that Betty cared for him after his diagnosis, he never spoke to her about their finances nor any arrangements he had made for their future. Betty, in her sorrow and exhaustion, was not up to ask any questions either. Kenneth had always handled those things and never consulted her.

After he passed, financial pressures started mounting for Betty and she was not sure where to turn. While finally going through the legal documents Kenneth had left behind, she found there was a $250,000 life insurance policy that she hoped would be her salvation out of debt and despair. Upon looking into the policy’s status, she found that the policy had lapsed due to non-payment months before and it was too late to collect the death benefit now. She did not find any overdue or lapse notices, so she had no way of knowing about the missed payment(s). After paying on this insurance for more than 50 years, there was nothing left.

In this case, she was finally able to get a little help through different organizations Kenneth had belonged to, but there have been cases like this when the surviving spouse had to move out of their life-long home or even had to go back to work to make ends meet.

Here are several suggestions that may help you avoid these difficult situations. The first is to be sure you have adequate coverage to cover future needs. Having a waiver of premium option on your policy can be useful if you become disabled and are unable to work. If you qualify through underwriting at the time the policy is issued, the company will pay your premiums for as long as your doctor says you are disabled.

The best way to avoid having your life insurance lapse is to set up automatic monthly payments from your bank account. Then there is no hassle or worry about being late.

With whole life and universal life policies, you may be able to choose the automatic loan payment rider. This works so if you miss a payment, an automatic loan is generated, if you have enough cash value in the policy. You can then pay back the loan and interest at a later time, let the loan stand and pay back the interest annually, or let the loan stand and have the interest roll over into the loan amount each year if there is sufficient cash value to handle it.

For whole life policies that give dividends, you may be able to use those dividends to offset some or all of the premium payments. With variable or flexible premium policies, you might change the amount that you put into the policy to better fit your current circumstances.

There is also the possibility of reducing the cost of the policy by eliminating some riders on the policy if you do not need them any longer or by lowering the face amount of your coverage. This could reduce the benefits to your beneficiaries, but less coverage is better than no coverage at all.

Another important point to consider is to always have open and continuing financial discussions with your spouse, and perhaps even your grown children when appropriate. If you are having financial problems, then it is even more critical, to be honest with your significant other. Financial difficulties and lack of communication are the biggest factors in most divorces. It is much better to go through it together than to go it alone.

Keeping an open line of communication with your broker or financial advisor can help to alleviate much ongoing anxiety. Having a periodic financial check-up is much like getting a physical check-up. It may not be fun, but it helps to know what the ailments are and how to deal with them.

(Names and details have been changed to protect confidentiality.)