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Question #92945 posted on 04/06/2020 11:45 p.m.

Dear 100 Hour Board,

How often do you think it happens that someone has a whole life insurance policy with hefty monthly payments for years or even decades and then shortly before their death they miss a payment because they're too sick to send in the premium and no family remembered to and they didn't have auto pay or simply expenses caused there not to be enough in the bank and so all that payment was a win for the insurance company because the policy was invalid at time of death?



Dear Larry,

My father-in-law works in financial service and I had to ask him this question (more or less). This was his response:

"Whole life is like paying a mortgage on a house, you pay it for a certain number of years and eventually it's paid off. But you continue on it and get its benefits. Term life is like renting a house or an apartment if you don't pay it one month you don't have it anymore. So with whole life, if you missed one month's payment it would depend on the non-forfeiture options.

Some policies would automatically take a loan against the cash value, others would lapse into extended term insurance. For instance, if term insurance was $500 a year and the cash value was $400, then you'd probably have about 10 months of term insurance left if you didn't make a payment and it changed into term insurance. 

If the policy was participating and the dividends that purchase more insurance you could also surrender additional chunks of insurance to pay the premium or use the dividend to pay a few months premium... the longer you had it and if you don't have any loans the longer it can carry itself.

If you took a maximum loan and didn't take an interest payment premium payment for a month that it could easily lapse with no value during that month."
...He does voice to text so he's not really great and being direct in his response.
But basically he's saying if someone had whole insurance and paid decades on it, then that person probably isn't going to be paying for it anymore when they die. So missing a payment the month they die is invalid, unless they still had payments. Which could turn into term insurance (depending on the fine print). Therefore, if someone was paying term life insurance and missed a payment, then the payment would be taken out of the cash value of the insurance. In the end, the insurance company has to pay out either way. 
-Goldie Rose