Life insurance safeguards and trapdoors
It can be emotionally draining to watch aging parents lose control of their finances. But it can be positively devastating to learn after the fact that they forgot to pay the premiums on their life insurance policies and accidentally allowed them to lapse -- especially if you and your family were the beneficiaries. How can you prevent such a sad scenario?
Fortunately, state laws and insurance regulations require issuers to provide some safeguards on life insurance policies that have a cash value, such as whole life and universal life, to protect against accidental lapses when age or illness interfere with cognition. Term life policies, which have no such cash value, do not have a similar array of safeguards, however.
We asked Michael Roscoe, vice president of The Hartford, and Jessica Ong, spokeswoman for MetLife, to walk us through the anti-forfeiture safeguards -- and point out the trapdoors -- in their life insurance products.
Note: Most of these safeguards pertain to fixed premium (or "whole life") policies with monthly premiums. In flexible premium (or "universal life") policies, the monthly costs are typically paid as deductions from the accumulation fund. The policy remains in force as long as there are sufficient funds present to cover the deductions. As its name implies, a flexible premium contract allows the insured to pay premiums when they choose.
Life insurance safeguards ...
Safeguard: Most insurance policies have a 30-day grace period. That means if Mom missed making her premium payment by a few days, she'll still be covered. If there are no other provisions in place to pay that premium, she will be sent a notice advising her that her payment is past due and payable by a certain date.
Trapdoor: If payment is not received by that date, she will very likely forfeit her policy -- in insurance lingo, her policy will "lapse."