A life insurance policy is a contract between the insured and the insurance company. Insurance company agrees to pay the beneficiary named in the policy a sum of money on the death of the insured in exchange for regular and timely payment of premium by the insured. The insurance company will keep its part of the deal only if you perform your part. You have the obligation to pay the premium on time. If you do not pay your premium in time, your policy could lapse and your beneficiaries will not get the death benefits when you die. So the very purpose of life insurance is defeated. Never allow your life insurance policy to lapse. It is a very bad thing. Your life insurance policy is not like your electricity or telephone bill. You cannot simply call your life insurance company and reinstate your policy some time after it lapses. You may have to apply for a new policy. Now if you have a term life insurance policy locked in 10 years ago when you were young and healthy and it lapses because you did not pay the premium, then it could be a very costly mistake.
The most common reason why life insurance policies lapse is because people forget to renew it. There are ways you can overcome this. Today most insurance companies have made it very easy to ensure you never forget to renew it. They offer automatic payment options. You can authorize them to withdrawal the premium from your bank account. They will deduct the premium from your checking or savings account when it is due. You will never have to write a check or mail a payment again. If you are not comfortable with the idea of automatic withdrawal from your bank account, you can provide your insurance agent with post dated checks which the insurance agent can send to the company. However this is advisable only if you have total confidence in your insurance agent and is not recommend if you are not comfortable with your insurance agent.
The other common reason why people allow life insurance policies to lapse is because they claim they can’t afford it. Most policies let you adjust your premium payments. You can change the frequency of payments. Some companies let you decrease your premium by decreasing the death benefits of your life insurance policy. You must contact your insurance company if you feel you cannot afford to pay the premium but don’t let the policy lapse.
