When someone experiences financial troubles, it’s common to worry over the potential loss of health insurance. After all, the loss of health insurance will cause an even greater financial burden in the event of major medical claims, but its absence can also limit treatment options as well. And car insurance – well, having it is the law, so there’s no choice.
Not nearly as many people worry so much about the potential loss of life insurance coverage during a difficult stretch. But in truth, life insurance can be your most important coverage during difficult times. Whatever your problems are at the moment, it’ll be far worse for your family in the event of your death. Keeping your life insurance in force should be a major priority, no matter what is happening.
Why you may no longer be able to afford your life insurance
What kind of difficulties might cause you to no longer be able to afford your life insurance policy? The possibilities are truly endless, but some of the more common scenarios include:
Loss of a job. Most people can deal with the financial fallout from a bout of unemployment that lasts a month or two. If it goes much beyond that, tough choices may have to be made. Unfortunately, cancelling life insurance is often on the table when this happens.
A major medical event. The high cost of medical treatment can upend everything else that is going on with your finances. This is true even if you have health insurance. There are co-pays and deductibles, and not all expenses are covered. A major medical event, such as the onset of heart disease or cancer, can become financially all-consuming. Despite the obvious importance that life insurance should have in this scenario, it is often sacrificed in order to pay immediate medical costs.
A run of major expenses. Sometimes the cause of financial difficulty comes from an unusual run of expenses. Your furnace could crap out at the same time that you need a new roof, and you are in desperate need of replacing your car. Add in just a few other unexpected expenses, and suddenly life insurance coverage becomes expendable.
A permanent reduction in income. The unemployment rate has been dropping in the past couple of years, but many people have had take lower paying jobs after long bouts of unemployment. The permanent reduction in income leaves little money available for non-immediate expenses, such as life insurance.
A major life change. Major life changes can occur that completely disrupt your finances. It could be a divorce, the death of a loved one, or even the return of an adult child. When any of these events take place, financial priorities can change quickly.
What you can do to keep from losing your life insurance coverage
While it is perfectly understandable that any of these reasons would force you to reorganize your finances, it is precisely at such times that you most need to have life insurance. Each situation creates a greater level of dependence on your resources, and greater vulnerability among your beneficiaries.
Here are some ways that you can use to keep your life insurance in force while facing financial difficulties:
Lower your coverage. This is much easier to do if you have term life insurance, rather than whole life. If you are finding it difficult to afford a $200,000 life insurance policy, try reducing it to $100,000. The premium will be cut in half, and you may be able to restore the original death benefit at a later date.
Convert your whole life policy to a term policy. If you have a whole life insurance policy, you can reduce the premiums substantially by converting it to a term policy. Term life insurance costs only a fraction of what a whole life policy does, and the conversion could be the difference between maintaining the policy in force, and being unable to afford it entirely.
Take advantage of your employer plan. If you absolutely cannot afford to maintain your own life insurance policy, take advantage of any that might be offered through your employer. Though the coverage will last only as long as your job does, it can be significantly less expensive than a private plan. You might be able to increase the amount of coverage to replace the lost coverage of your private policy.
Drop policy riders. Many life insurance policies include various riders, such as accidental death and dismemberment. While these riders add valuable benefits to your policy, they also increase the premium. If it will help you to be able to keep your life insurance policy in force, drop as many riders as you can.
Use the cash value to pay the premium. If you have a whole life insurance policy, then there should be a cash value in it, particularly if the policy has been in force for several years. You can use the cash value to pay your premiums for as long as the cash value lasts. Hopefully that will provide you with enough money to pay the premiums until your financial distress passes.
While it is tempting to cut expenses, such as life insurance, during a time of financial distress, is equally important to realize that such a time is exactly when you most need life insurance. Before terminating your policy, use every option available to avoid having to do so.
