Unable to pay for insurance policy?
What are the options available if you are unable to pay for insurance policy?
Insurance premiums are a long-term commitment and once we have decided to purchase and start on a policy, you must ensure that the premiums are paid regularly to prevent any policy lapse. It is useful as it helps to squirrel away some money so that you consistently save towards your future while you are still in your working years.
However, what if due to certain circumstances that you are unable to get through the present, how else are you supposed to pay for your premiums? At that point, you would have no choice except to deal with the present first. Though there will undoubtedly be some penalties that you may face, exploring choices that are accessible would assist you in choosing what is best for your current circumstances.
Automatic Premium Loan
Firstly, assuming that the policy has been running for a couple of years, at this point it would have accumulated some cash value. An Automatic Premium Loan (APL) is an insurance policy provision in which insurers can deduct the policy’s cash value to pay for the outstanding premiums owed, allowing the policy to continue rather than lapsing due to non-payment. However, taking an APL is not ideal as there is an interest of 5.25% to 6.75% p.a. charged daily.
As illustrated from the table above, you’ll be able to see that the daily interest charged is higher than the annual returns of the policy. If you are facing these two circumstances:
- You assumed and anticipated that you are unable to pay back the APL for the time being;
- Your policy has been running on APL for a short period of time;
Then it very well may be more beneficial for you to consider surrendering or selling your policy as the compounded interest will reduce the cash value or even exhaust any remaining value of the policy.
This will eventually lead to policy lapsing since there will no longer be any cash value to it nor will you be able to receive your money back from the policy. However, if you would like to reinstate a lapsed policy, it can usually be done within 2-3 years provided that all past premiums are paid along with the accumulated interest charged.
Surrendering Your Policy
Surrendering a policy meant that the policy will be discontinued, and you will only get back the current cash value of the policy. Thus, the obligation to continue paying for the premiums of the policy will likewise stop.
Assuming there are a couple of policies that you have trouble paying, by surrendering one of them, you can utilize the cash from the surrendered policy to fund other policies that you would like to keep. Alternatively, you can take the next option by selling your policy.
Selling your policy
Another alternative to surrendering your policy is to sell them. Consider selling your insurance policy for more cash to a third-party vendor or broker, like REPs Holdings, who specializes in buying or acquisition of Resale Endowment Policies. Third-party vendors or brokers can pay higher than the Insurers’ surrender value because they do not need to incur any costs relating to the process of surrendering and termination of policies. Most insurance policies have a cash value that will be paid out when ceased.
If you have decided to let go of your insurance policies, or if your policy has already lapsed, you may contact Reps Holdings for a free policy valuation to see if your policies can be sold to them instead. By doing so, you can get more money than what your insurer will offer. Reps Holdings has been in the market since 2010 and will offer higher value to buy over your insurance policies.
Reducing sum assured
By reducing the total sum assured of the policy means that the premiums will be reduced to a smaller amount. When premiums are lowered, returns will be reduced as well. However, that is not the only setback. By reducing the sum assured of the policy, we will be forfeiting all previously paid premiums that exceed the new premium payable.
Example: If we have paid $10,000 annual premiums for 2 years and reduce the premiums payable to $2,000 yearly, the 2 years of $8,000 paid will be gone.
Convert to a reduced paid-up policy
When you convert your policy to a paid-up policy means that you will not have to continue paying the premiums of the policy. However, this also means that the policy will no longer be entitled to bonuses, and this is very detrimental to the policy.
The main advantage is that you will still be covered for the sum assured of the policy. Be that as it may, the cash value of the policy will be locked in till maturity or till you surrender your policy. You should only do this if it’s a protection policy and that you need the sum assured as you are unable to insure yourself under a new policy.
After weighing the pros and cons of the options provided above, you should be able to evaluate what is the best option for your current situation. Nevertheless, regardless of what you have decided to do with the policy, if your chosen option is to sell your policy, you can always approach Reps Holdings. It doesn’t matter whether if you have an APL, lapsed, or reduced sum assured in the policy. You can rest assured that Reps Holdings is reliable and efficient in handling the procedures for you.