People often have an almost casual attitude toward life insurance. They’ll pay every other bill – the house, the car loan, utilities, credit cards, health insurance, and a gym membership. And the life insurance premium? It will be near the bottom of the list.
And if times get hard, if a job is lost, the life insurance policy will be just about the first service to be canceled. (Yes, even before cable TV!) Perhaps they reason that they can always get a new life insurance policy when they get back on their feet.
But can they really? It’s actually not always possible, and is almost never easy. That’s why you should never let your life insurance policy lapse. Life can change after you first take a life insurance policy, and that can make it difficult or even impossible to get a new one after the fact.
Your Health Status Could Change
A life insurance policy actually is easy to get – as long as you’re in perfect health. Maybe that was the case when you took the policy that you have now. But if you’ve developed any kind of health condition since that time, getting a new life insurance policy becomes more difficult.
Though you may not understand the full implications, a bout with cancer or a heart related episode can make it much more difficult to get a new life insurance policy. Even if the event took place years ago, or the condition is well controlled, there can still be complications in getting new policy.
First of all is the fact that a health condition – just about any health condition – will have at least some effect on your premium. On top of that is the fact that you are obviously older now than you were when you purchased your last policy. The new policy will be more expensive just based on the fact that you are older alone. But when you add the effect of your health condition on top of that, the new policy can be much more expensive.
A Career Change (Believe it or not!) Changes Your Insurability
The type of career that you work in can have a material effect on how much you will pay for a life insurance policy. For example, if you were a teacher at the time you took your last policy, but you’re now a police officer, your premium may be dramatically higher.
There are a surprisingly large number of careers that are considered hazardous from a life insurance perspective. This can include truck drivers, airline pilots, farmers, and especially fishermen. The premium rate change for any of these careers could even be prohibitive.
Your New Premium Could Skyrocket
Whether the reason is a change in your health condition, a different and more hazardous career, as well as older age, the premium on the new policy could be several times higher than what you are paying on your original policy.
While it’s true that many companies advertise incredibly low premium rates for life insurance, those are always the lowest rates possible based on the profiles of the lowest risk customers. For example, a popular insurance company may quote a very low premium rate that’s based on a 25-year-old non-smoker. But if you are a 45-year-old smoker, you won’t get the advertised rate, or anything close to it.
The policy that you have right now will be the least expensive one that you can possibly own even under the best of circumstances. Age alone guarantees this.
It’s also important to understand that the premium on a brand-new policy can be much higher even if you haven’t had a major health event. A higher premium can be caused something seemingly insignificant, such as substantial weight gain, or the onset of a common condition, such as high blood pressure or high cholesterol.
You May Even be Uninsurable
Sometimes allowing a life insurance policy to lapse can even set you up for a life insurance catastrophe. That would be a situation in which you have become completely uninsurable since you took your previous policy.
For example, let’s say you took your first policy when you were in excellent health. But a job loss or some other financial disruption caused you to allow that policy to lapse.
Two years after the policy lapsed, you have a heart attack. The realization of your own mortality, combined with the reality that you have no life insurance in the event the worst should happen, causes you to move life insurance a good bit higher on your list of financial priorities.
But now you have a problem. The heart attack has made you ineligible for life insurance for the foreseeable future.
Insurance companies are making rapid progress in their ability to provide coverage for people with a wide variety of illnesses and health conditions. But a recent experience with a major health problem can make you uninsurable in the immediate aftermath. In the situation described above, you may not be able to get a life insurance policy at all for the next two or three years.
Insurance companies need this amount of time pass before they can reliably assess the risk in your policy. The delay will give them time to see if there are subsequent events, as well as how well you respond to treatment.
But none of that will be any good in the months and years following your health problem.
What to Do if Your Life Insurance Lapses
If you have allowed your life insurance policy to lapse, the best strategy is to attempt to reinstate the original policy with that company.
Most policies come with a grace period. As long as you make your payment within the allotted time, your policy will continue in force as normal. But this is a very short amount of time. In most cases, it will be no more than 30 days.
Some companies will allow you to reinstate your policy even after the grace period expires. They may for example, reinstate your policy under the original terms for up to one year. However this will come with some stipulations. They will generally require that your health situation has not changed. And in addition, they will typically require that you make up all the missed premium payments. This will enable your policy to continue in force as though it never lapsed.
If neither option is available to you, you’ll have to get a new policy entirely. But because your age, occupation, and health status may all have changed, it won’t be as easy to do the second time around. That being the case, you’re going to need assistance from a competent life insurance agent.
That’s what we do, and we’d love to help you get the best policy possible for the lowest premium available. Give us a call and let us help you do just that. We’re waiting to help you!