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Inside this Article
Life Insurance Coverage
Introduction
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Your need for life insurance may
decrease over time, allowing you to reduce
or eliminate insurance premiums and
benefit from accrued cash values.
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Eliminating Or Reducing Term
Coverage
Step One
Stop making premium payments on any term coverage that is no longer
necessary for your designated beneficiary.
Step Two
Reduce the death benefit of a policy if some coverage is still
needed.
Step Three
Call the customer service department of the insurance company's home
office and ask for the necessary forms to effect either change.
Tips & Warnings
- Redirect cash flow from premiums to debt payoff or to savings and
investments.
- Reducing coverage should result in significantly lower premiums.
- Don't eliminate coverage if there is still a need to provide a
lump sum payment at your death to cover final expenses.
- Changes in the death benefit will probably not be allowed to take
place until the next policy anniversary date.
- There may be a minimum amount of coverage below which an insurance
company will not allow further reductions in the death benefit.
- Premiums not paid before the end of the grace period will cause a
term policy to lapse, and reinstatement of the death benefit may not
be possible.
Maintaining
Coverage With No Further Premium Payments
Step One
Find the insurance policies (and latest annual statements) on
which you are still paying premiums and for which you are the owner.
Step Two
Separate term policies from permanent policies (ones with cash
values), and set the term policies aside.
Step Three
Write down, on a separate piece of paper for each permanent policy,
the name of the insurance company that issued the policy, the
phone number of the company's home office, and the policy or contract
number.
Step Four
Call the customer service department of each insurance company
and ask the representative to send you an "in-force policy
illustration" showing the effect of no further premium payments.
Step Five
Document your call, noting the date, time of day, full name of the
person to whom you spoke, and his or her direct phone number or
extension.
Step Six
Call the customer service department again to discuss your options
after you get the illustration in the mail.
Step Seven
Stop making premium payments if you determine that you no longer need
the coverage or if you can keep some or all of the coverage in force
with the cash values of the policy.
Tips
& Warnings
- Permanent life insurance policies may have
enough cash values to allow you to reduce or eliminate premium
payments altogether and redirect that money to other uses.
- If you have a good relationship with a life
insurance agent, get him or her to help you.
- You may want to contact a certified financial
planner (CFP) or other financial professional to direct your
efforts.
- Don't stop making premium payments until you
know exactly what effect such an action will have on the values of
your policy over time.
- An insurance company will not take the
initiative to advise you that you no longer need to make premium
payments to keep your policy in force.
- Watch out for insurance scams that direct you
to borrow against or "cash out" your policy to buy more
insurance.
- Flexible premium or universal policies may
require additional premium payments if the interest rates drop or
the returns of invested cash values decrease.
Exercising
the "Reduced Paid-Up Insurance Policy" Option or the
"Paid-Up Term" Option if Available
Step One
Contact the customer service department at the home office and ask
the representative to calculate a reduced paid-up insurance policy
based on current policy values.
Step Two
Factor the lower death benefit of such a policy into your retirement
and estate planning.
Step Three
Fill out the necessary forms to allow the company to issue you a new
permanent policy.
Step Four
Exercise the paid-up term Option if available. Determine if your
policy provides a paid-up term option, and calculate how long the term
coverage will actually last.
Step Five
Choose this option if your insurance needs do not exceed the period
of extended term coverage.
Tips & Warnings
- A reduced paid-up policy option may be one of the
guaranteed benefits of your whole life or universal life policy.
- Choosing this option provides a lower guaranteed
lifetime death benefit to your beneficiary and eliminates the need
for further premium payments.
- A paid-up term policy allows you to stop making
premium payments, yet still provides a death benefit to your
beneficiary.
- Reduced paid-up insurance policies do
not have a cash value against which loans can be made.
- Once chosen, this change is permanent and
irreversible.
- The death benefit of such a policy will be
significantly lower than that of the original policy.
- This option is not available for all
permanent-type life insurance policies.
- Loans against cash values may not allow such an
option to be exercised until they are paid in whole or in part.
- Paid-up term policies are permanent and
irrevocable and provide no cash values.
- Loans cannot be made on paid-up term policies.
- Insurance coverage terminates at the end of the
term and cannot be renewed or extended.
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