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Question Mark Symbol on a Bear Trap

The normal thought to keeping Life Insurance coverage in force so the benefit is paid when the insured dies, is to “pay the premium” when due. But it can be much more complicated than just paying the premium.

Certainly, if you have a term policy with temporary coverage, prompt payments are the simple solution. Your only concern with fixed term Life Insurance is if the need for coverage extends beyond the contractual period, which most of the time is the case.

Alternatively, if you have Permanent Life insurance coverage intended to last to the end, whenever that is, you need to very diligent.

If the permanent policy is traditional whole life, built on guarantees, paying the premium without taking any withdrawals will accomplish the goal.

If your permanent coverage is Universal Life, Universal Variable Life, or Indexed Universal Life, it is vital to understand the potential “Lapse Traps” inherent in the policies. It is possible to pay the agreed premium for the policy and still have the coverage lapse later in life.

These types of permanent insurance contracts generally require a build-up of cash value to support future mortality cost requirements. Each type of coverage has an underlying investment that relies upon performance of the investment account to build value. Even with paying the agreed premium, if the investment account under performs the original hypothetical assumptions, the policy could lapse later in life.

Life Insurance is the single most popular and efficient vehicle to underpin a legacy. Diligence in understanding the policy drivers, with an eye on proper funding, will provide the assurance that the benefit will be payable when the time comes.

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