Life Insurance Premiums
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Are you interested in purchasing life insurance?
Or, maybe you have just begun researching your life insurance options?
If so, you may have questions about life insurance premiums – How they work, and your options for paying your premiums.
The money you pay for your life insurance policy is called the "Premium". This payment is made to the life insurance company, each year, or on a monthly basis.
Life Insurance Premiums – Questions and Answers
How can you pay your life insurance premiums?
Is there a way in which your premium can be paid automatically from your checking account, or by credit card?
You can pay your life insurance premium through any of the following options:
- Insurance Offices: Main office or branch offices of your life insurance company.
- The Internet: Through banks that your insurance company has arrangements with.
- The Bank: You can provide your bank with standing instructions (auto-pay) to debit your account when your life insurance premium becomes payable, or use phone-banking facilities
- Credit Card: Some insurers allow use of your credit card to make payments on a regular basis.
What if you forget to pay your insurance premiums?
Usually, you would receive a notice from your life insurance agent, and the life insurance company, reminding you about your life insurance premiums being due, and the due date.
However, if you don't receive the reminder, you cannot hold the insurance company responsible; the loss of your life insurance coverage, as well as the responsibility to pay your premiums due before the due date, is yours.
A life insurance company usually provides a 30 days grace period (15 days for monthly payments) during which the premium has to be paid.
However, if your insurance policy lapses due to non-receipt of your insurance premiums within the first three years, it can be revived (re-instated) within two years from the date your life insurance coverage lapsed.
The insurance company charges interest for deferred payment of your policy, and has the right to accept or decline re-instating your life insurance coverage.
That means they may or may not re-instate your life insurance policy if you pay the premiums after the grace period.
NOTE: You are taking a chance with your family's future by being negligent with your premium payments. And you and/or your family could pay for the consequences, literally. Make sure you pay your premiums on time.
What happens if a life insurance policy lapses?
A life insurance company provides the insured with a grace period of 30 days, that is, a period of 30 days after the start date of the policy.
The insured can pay his/her premium on any day during this grace period. In case the insured dies during the grace period, the insurer is liable to pay the death benefit (coverage amount) to the beneficiary named in the policy, less any amount outstanding (including the unpaid premium).
This provision helps the insurer to minimize the risk of policy lapse unintentionally by the insured.
In case the insured has not paid policy premiums after the grace period, the life insurance policy lapses.
However, a lapsed policy can be reinstated within a certain period. The insured has to pay the insurer the accumulated due insurance premium, including any interest due, as well as provide a good health statement.
Insurance companies offer many procedures for the insured to re-instate her/his policy.
You can review your terms of re-instatement in your life insurance policy.
In the event the insured dies and the policy lapsed within three years from the date of commencement (start) of the life insurance policy, then the insurance company is not liable to settle such claims. No payment of life insurance proceeds would be made to your beneficiary.
However, some concessions may be available, and insurance payments of claims may be made, which may include the following situations:
- If the insured had paid the life insurance premium for at least three years and thereafter if the premiums due have not been paid, the beneficiary would receive a proportionate paid up value.
- If the life insurance premium has been paid for a minimum term of two years, and if the insured dies during the term of the life insurance policy.
NOTE: Please review the Terms and Conditions of your life insurance policy for payment of premiums due, and coverage paid to beneficiaries. This may vary by insurer. Please review your life insurance policy for complete details as to how the coverage and premiums are handled by your insurance company.
I have not paid my life insurance premium for a few years. Will I get any money back from the insurance company?
The life insurance company provides a grace period during which you can pay your life insurance premium due, and keep the policy in force.
For a regular premium paying policy, premium has to be paid within 30 days of the due date (15 days if the payment is paid on a monthly basis).
If it has been less than three years since you purchased your life insurance policy and not paid your premiums, you may not receive any money back from the life insurance company.
If you have paid premium for more than three consecutive years, then a surrender value could be payable to you – depending on the type of life insurance policy.
However, this would vary by insurance carrier and type of plan. Typically, the surrender value depends on the following:
- Type of life insurance policy
- Policy term
- Amount of premium
- Number of years for which the premium has been paid
- Accumulated bonus, if any, in your policy
What do you do if you have lost or misplaced your life insurance policy?
If you think the policy is lost or misplaced, do check again at your home, office, and among your financial papers, and verify with your life insurance agent, too.
You need to apply for a duplicate life insurance policy from the insurance company branch office that services you.
The life insurance company will provide you with a duplicate policy after you pay any necessary fees and executing an indemnity bond. (In order to speed up the verification process, you could provide the insurance company with a receipt of premium for your life insurance policy and proof of your identification).
If your life insurance policy has been partially destroyed due to natural causes, such as, fire, flood, earthquake, tornado, etc., the remaining portion may be returned as evidence of loss of your life insurance policy.
Will your insurance premium amount increase after you have purchased your life insurance policy?
A life insurance policy is a contract, or an agreement, that you enter into with the insurance company.
The premium is a fixed price that you are willing to pay in order to remain insured for the term of your life insurance policy. Therefore, the life insurance company cannot increase your premiums at a later stage (unless you have defaulted on your premium dues, for a long period), or it is agreed to in the terms of your life insurance policy.
Can I get a loan from my life insurance policy?
No loan is available on term life insurance plans.
However, a loan may be available for some permanent life insurance policies that build up cash value within the policy, or offer a profit, bonus, or guaranteed additions.
A loan may also be available on unit-linked life insurance plans.
However, make sure to verify any loan details in the life insurance policy, and ask for written confirmation from your agent, or life insurance company prior to purchasing your policy, if you feel you may need a loan from your life insurance policy in the future.
A loan may be available within one to three years of the start of your life insurance plan, depending on the policy, and the insurance carrier.
How is the loan amount available determined?
The loan amount depends on the type of life insurance policy you own, the insurance premium amount, the term of the policy, and the number of years the life insurance premiums have been paid.
Approximately 75 per cent to 90 per cent of the surrender value of your life insurance policy is available as a loan, at the prevailing rate of interest.
The amount of the loan can be repaid in part or in full at any time during the term of your policy. If the loan is not repaid, it will be deducted from the proceeds of policy.
How are life insurance premiums determined?
Life insurance companies consider several factors when developing your rates for life insurance.
Among the leading factors for life insurance rates are:
- Your Age
- Your health
- Your family’s health history
- Whether you smoke, or not
- Height-to-Weight Ration
- Type and amount of life insurance
In addition, each insurer has their own set of underwriting guidelines that affect their rates. And, the loss experience of the insurer will affect the rates they currently charge for life insurance.
Life insurance rates vary that’s why it is important to compare life insurance premiums from several companies before choosing your life insurance policy.
Also, term life insurance offers rates that are 2-3 times lower than permanent life insurance. So, if you need life insurance for 30 years, or less, term life insurance may be right for you.
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