When an insured policyowner can no longer keep making premium payments on his life insurance policy, there are several options available.
Cash in the policy
The policy may be cashed in. Depending on the cash value of the policy, this may be a good choice for elderly insureds who need funds to pay for their home care and other living expenses. However, if the cash payout the insurance company has offered is miniscule, cashing it in may not be feasible.
When a person takes out a life insurance policy, he must fill out a life insurance application.
The application asks the applicant to name the policyowner, insured and beneficiary. In many cases, the insured is the policyowner. Sometimes, however, they are two different individuals.
A policyowner may also be a trust with the designated trustee. An application for life insurance has a special section where an applicant must indicate the person who will be responsible for paying premiums and the billing address.
If an insured is not a policyowner, he may or may not be responsible for paying premiums. However, if the insured assumes the responsibility for paying premiums, the insurance company will send premium-due notices to the insured.
Every life insurance policy outlines the rights and obligations of a policyowner. In a typical insurance contract, “you” means “policyowner”. For example, if a contract states, “You have the right to change beneficiaries”, it refers to the policyowner’s right to change beneficiaries.
A policyowner is the person who is granted many rights by the insurance contract that he can exercise during the lifetime of the insured. One of such rights is the right to change a policyowner. Usually, the ownership arrangement in effect on the contract date will remain in effect unless the policyowner asks the insurance company to change it.
In order for a life insurance claim to be paid, several requirements must be met: there must be valid coverage at the time of an insured’s death, a beneficiary must produce a certified copy of the death certificate and file a notice of claim, an insurance company must make sure exclusions do not apply, etc.
The most important requirement of all is the existence of valid coverage at the time of an insured’s death, because if there is no coverage at the time of death, no claim can be filed. An active policy at the time of death means that the policyowner paid the policy premiums on time and did not allow the policy to lapse (cancel without value).
When individuals are covered by group life insurance plans provided by employers, they enjoy low premiums and do not have to worry about making a premium payment on time, since in most cases, premiums are taken out of their paychecks.
There are many other advantages to group life insurance coverage: help from employers’ HR departments, open enrollment periods, ease of increasing or decreasing coverage and dependent life insurance coverage. If an employee has a question about her benefits, she may simply speak with her employer’s human resources department and get answers.
What happens, however, if an insured is given wrong information by the insurer or the HR personnel and acts in reliance on the incorrect information?
Many group life insurance policies offer a waiver of premium benefit. A waiver of premium benefit provides life insurance coverage in the event of total disability and does not require premium payments.
It means that a disabled person who applied for a waiver of premium benefit may be covered by the same amount of life insurance they had before disability free of charge. In order to take advantage of this benefit, an insured must apply or send in a request to the insurance company providing coverage.
Disputes about life insurance proceeds among family members are not only emotionally difficult, but they can also negatively affect financial affairs of those who relied on the proceeds of a life insurance policy after a loved one’s untimely death.
Law surrounding estate planning, family, divorce, child support, trusts and wills may all come into a play after a person’s death. Dealing with financial affairs after a family member’s death may become a real problem because of the complexity of laws and the amount of documents involved.