Life insurance as you will realize by now is a multi-faceted gem of a product, which, when the time comes, can  become  an instant solution to all your financial problems.

 

Unlike a 401(k) which is intended to be used solely for retirement income, which if used for other purposes at pre-retirement age is subject to a penalty, life insurance cash values can be used for anything and everything, at all ages, without restrictions or penalty.   

 

Unlike a 401(k) which is income taxable when you start withdrawing your money at retirement, (which is the reason why many seniors who are averse to taxation delay withdrawing their  money until the  maximum age of 70 ½, at which time they are mandated by law to begin their Required Minimum Distributions (RMDs), which is reduced by the income taxes they have to pay), life insurance is still the only product today that is completely income tax free and if it is a multi-million dollar policy, can be estate tax free also if purchased  and owned by an  irrevocable trust.

 

Protagonists of life insurance are usually the aggrieved beneficiaries whose death claims on their parents or relatives were unfortunately denied by the insurance companies, even if the denial is legal or justified.

 

In the defense of insurance companies and for the information of future beneficiaries, most common reasons for claim denials are:

 

1.    Because the primary insured lied or concealed material facts on the paper application or during the recorded telephone interview re: their medical history and died too soon thereafter (misrepresentation); or

 

2.    Because the primary insured committed suicide within two years of purchasing the policy (contestable period); or

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3.    The policy had lapsed without the insured's or the beneficiaries' awareness of its lapse status.

 

Policies lapse because:
 

•    Most common reason:  insured forgot to pay the term policy premium on due date or within the extra 30 days grace period;

 

•    Term (10, 20 or 30 years) has expired and insured did not convert the term policy to life, or did not purchase another term policy to continue coverage;

 

•    The old Universal Life policy usually lapses over time if the insured keeps paying the “minimum” premium. The lapse year is clearly stated on the annual statement sent to the insured.

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•    Whole life policies can lapse also when the insured stops paying premium prematurely, and the cash values used automatically to pay the premiums are consumed, at which time, the policy lapses, but with non-forfeiture benefits which the insured  is usually not aware of.  

 

Again, in the defense of insurance companies, they do send out notices to the insured to the address they have in their system to inform them about the near-lapse status of their policy/ies, so that it can be saved, but because the insured has moved without notification of  their new address, or because they do not read what they perceive as junk mail, or the notices are ignored and no action was taken, the policy lapses, and the time allotted for reinstatement also ran out.

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So it is important that you keep your policy in force so that it will serve the purpose for which it was intended... when the time comes.