Should You Keep Your Life Insurance Policy During Tough Times?

If there’s one thing the pandemic has taught us, it is the importance of prioritizing our health over anything. Life insurance has become a necessity for each household. However, there are times when it gets harder for you to make ends meet. A financial crisis can occur anytime and to anyone. The question is, “what can you do to cut down your expenses” “should you keep your insurance policy during these times, or is it better to cancel”? While canceling the life insurance can save you the monthly premiums, it is a bad idea.

First things first, your life insurance is not a regular financial expense. Ending your life insurance comes with a set of risks that might cost you more in the long run. Besides that, there are ways to save money on your insurance policy without having to cancel the coverage altogether. Let’s see why you should keep your life insurance during tough times.

What Happens if You End Your Coverage?

If you are the only breadwinner of your family, you can’t end your life insurance as your family depends on you for financial support. Think about it—you are already dealing with a financial crisis. What if you pass away, lose your job, or meet an accident that leads to your inability to pursue your current job. Your kids will have to pay for your medical expenses or search for a source of income to meet the family’s financial needs. It might seem difficult to pay your premiums now, but in the long run, it only makes sense to cut down on other expenses and keep your life insurance.

With life insurance, you will have peace of mind knowing that your loved ones will get monetary support as and when needed. Whether it is your children’s education or a medical expense for your parent’s deteriorating health, life insurance always comes in handy in the event of a financial emergency. The last thing you want is to deprive your family of the support they can get from the insurance policy.

There’s No Guarantee You can Repurchase the Life Insurance

You can cancel your cable service or the subscription to streaming apps for a while. You can start them again once your financial condition improves. There is always an option for re-purchasing these services. However, the same isn’t possible for a life insurance policy. You can buy life insurance again, but you have to invest in new coverage. Besides, the process is quite tedious.

A new coverage means additional underwriting and a more expensive policy. You are also supposed to get your medical underwriting done before you are approved for life insurance. If you cancel your now and develop a medical disease later in your life, there is very little chance you will get insurance. It is, therefore, important to keep your life insurance no matter your financial conditions. There is no guarantee you will get the same coverage at an existing price later.

Use Life Insurance for a Loan

Canceling your life insurance will save you only a few hundred dollars a year, but keeping it gives you a golden opportunity to withdraw money from your policy. If you have been paying premiums for years, you can withdraw a portion of it while you are still alive. You can withdraw some amount from your policy to finance your medical expenses or other emergency needs.

Although it will reduce some benefits from your death policy, it is much better than canceling the plan itself. Another way to make use of the life insurance policy for funding your financial needs is by taking a policy loan. Instead of withdrawing the required sum, you can take out the money as a loan and repay it in the future. However, you will have to pay the loan with interest. Both approaches enable people to fund their emergency requirements without having to end the plan.

Note that policy cancelation will be subject to income taxes on your gains. It happens when you get more from your insurance than the premiums you have paid over the course of the policy. Your best bet is to use your life insurance as a loan. This way, you will get emergency funding without canceling the policy and without paying an income tax.

Lower Your Insurance Costs

Before you make any decision, see if your insurance provider offers any flexibility on the policy. For instance, some insurers allow you to use the cash value of the coverage to pay premiums. Or, you can switch your current policy into a cheaper yet equally beneficial option, such as term insurance. It charges lower premiums while offering the same death benefits. Low premiums are because of the fact that term insurance lasts for only a specific period. Still, it is better to keep your family protected temporarily. Later, you can switch back to the whole life insurance.

Last but not least, you can work with the insurance provider to see if you can lower the death benefit. It is always better to have some coverage for your family than none. Go over your policy to see whether it has coverages that you don’t need right now. For instance, if you don’t have children or your kids are already grown-ups, you might not need to cover their financial needs. So, cancel these extras that your family won’t need after your death. It will lower your premium costs.

Bottom Line

Your coverage ends when you are unable to pay the premiums after the grace period. Depending on the insurer, you might get a grace period of up to 30 days for clearing your premium payments. Until then, you will be covered even if you have missed premiums. If you are still not sure about keeping your life insurance policy, contact George J. Roth, the popular insurance advisor in Edmonton, on tel: +1 780-909-8524. He will help you understand your risks, benefits, and ways to save money on your life insurance policy.