Life insurance, at least most forms of it, tend to be needed less and less as you age. Everyday people let their life insurance policy lapse. Either they don’t need what they needed before or it’s too difficult to pay for, there’s a number of very understandable reasons people would leave their life insurance policy and let it expire. There’s also a number of reasons you shouldn’t do this, and quite a few ways you can do it better if you no longer need life insurance.
#1: You May Still Actually Need Life Insurance
Life insurance is largely in place to protect loved ones against the effects of debt, income loss, and devastating final affairs following a death. And while debt and the reliability of an income tend to go away once we retire, our need to cover final affairs hasn’t. And to you, this is largely a factor of “Have you Saved Enough?” vs, “Can you Pay For Your Lifestyle?”. Personal savings can go a long way in providing for final affairs, however they do have three serious shortcomings if you’re saving money for a funeral:
- Life Insurance is still paid tax-free. Your savings, pass down, can be taxed. So you’re losing some of those savings;
- You may not be able to save enough in the amount of time you have (or may not have);
- Even if you do save up enough, you may be taking out of your quality of life because you need to save more, and you need to save it faster.
#2: Many Plans offer Paid-Up Insurance
A feature common under many whole life insurance plans is the option for paid-up life insurance. What that means is essentially when you stop paying premiums on your policy, you still retain a portion of coverage (dependent on how much you paid) that remains in force for the rest of your life.
So how can this be an issue if this feature explicitly allows you to let your policy lapse? Hand in hand with letting a policy lapse is letting a policy go forgotten. This can become a considerable issue for your family if, after your death, they can’t even find a policy in your name or – worse yet – didn’t even know it existed.
So rather than forget about your policy, choose to let it lapse in a way that lets you keep records, keep up to date with your insurer, and maintain your policy for future generations. If you let a policy lapse, you should let it lapse in a way that’s still useful.
#3: A Lot of Plans Can Pay Out A Cash Value
One thing that doesn’t make a lot of sense is that people let their policies lapse because of a misplaced feeling that they’re paid into something for no foreseeable returns. And while term life insurance is something you pay into until it expires, whole life insurance is paid into until you die. It’s hard to argue with the sunk-cost fallacy when you’re paid in a policy that much.
However many permanent life insurance policies have a feature built into it that addresses this very problem. With the exception of Term to Age 100 plans, almost all whole life insurance plans offer a cash value, aka. Cash surrender value.
How this cash value works is largely dependent on the plan, from letting you borrow from the policy to letting you “control” your insurance premiums, but the vast majority offer a cash settlement if you surrender your policy.
If you must let your policy lapse, do so in a way that lets you claim this value. If you let your policy lapse without collecting the cash value – you could be out of luck.
#4: Once You Stop, It’s Hard to Restart
If you’ve owned a life insurance policy for a number of years, you’re paying the rate that you were paying when you started. Now consider everything, not just age, that’s changed since that point.
If you’ve had a health issue arise in recent years, that will affect your premiums. If you’re not working, that may affect your eligibility for certain plans. If someone in your family has died due to a previously undiagnosed congenital issue, that will come up in your application.
Overall, starting life insurance after you’ve already stopped becomes hugely difficult, meaning that choosing to let your policy lapse is a decision that you cannot make lightly. Stopping a policy shouldn’t just be a matter of cost or convenience, but rather a logical conclusion when you ask yourself the following questions:
- Do I still need to cover costs in my life so my family doesn’t have to?
- Do I benefit from stopping payments?
- Is my plan accommodating my needs at my current age?
- In the future – will I still need protection?
When we pass away, there’s always one cost we need to have a plan for: our funeral expenses. In Canada, the cost of a funeral can vary between $7,000 and $10,000; a cost that would have to be paid for by your family if you don’t have a funeral plan in place.
Funeral insurance is typically a low-cost life insurance policy designed to help your family cover the costs of a loved one’s funeral, as well as other final expenses which may include: legal fees, capital gains taxes, and as small gifts to family members.
Whether your needs are great or small, everyone can benefit by planning for their funeral with funeral insurance. The need this product fills is ideal for those over 50, as:
- You can obtain coverage oftentimes without a medical exam, and even without needing to answer health questions.
- You can obtain coverage generally up to $25,000 with guaranteed eligibility for most individuals ages 40 to 80.
- Your coverage is guaranteed for life, with premiums that never increase and no renewals nor reviews of your policy necessary.
You can take out a policy and get it issued immediately, with no lengthy waiting periods.
According to preliminary estimates provided by Catastrophe Indices and Quantification Inc. the cost of insured damage caused by the ice storm that swept through southern Ontario between March 23 and 26 is estimated at more than $25 million. CatIQ compiles and combines comprehensive insured-loss amounts and related information to serve the risk management needs of the insurance and reinsurance industries.
While the storm hit many areas in the province, Fergus, Orangeville, Barrie, Newmarket and surrounding areas were particularly affected by the storm, the Insurance Bureau of Canada (IBC) . Strong winds and freezing rain toppled fences, trees and power lines, and left hundreds without power.
Impact Forecasting, catastrophe model development team, estimated earlier this month that total economic losses from a winter storm in Ontario and Quebec on March 24 and 25 were estimated to approach $130 million. The March 24-25 storm, Impacting Forecasting said, tracked into southern Canada from the United States, bringing accumulating snow, ice and freezing rain to portions of the two provinces, causing widespread damage.
Southern Ontario was particularly impacted, the Global Catastrophe Recap for March said, as trees collapsed onto homes and vehicles under the weight of up to 30 millimetres of ice. Beyond structural damage, power outages were blamed on a spike of sump pump failures, which led to flooding in basements. Treacherous driving conditions additionally prompted hundreds of traffic accidents, the report said.
Nova Scotia’s Department of Finance of Treasury Board announced on Tuesday changes to auto insurance rules that “will help some drivers keep their insurance premiums stable and create consistency in the marketplace.”
According to Finance and Treasury Board Minister Randy Delorey, some drivers were not getting an opportunity to control their insurance premiums because of “inconsistent interpretation of the province’s insurance law. The changes clarify options available to drivers to maintain their auto insurance costs.”
Nova Scotia is the first province to allow voluntary payments, the Department of Finance and Treasury Board said in a statement.
When a driver has a minor at-fault accident without resulting injuries, they may be able to reimburse the insurance company for the cost of the resulting damages, the statement explained. Under the changes, once a voluntary payment is made, the accident is registered as not-at-fault, and doesn’t affect the driver’s record.
“While a common practice for many insurers, some companies felt that Nova Scotia’s insurance law didn’t allow voluntary payments,” the statement said. “This regulation clarifies that drivers can use voluntary payments to control their driving records and insurance ratings due to minor accidents.”