Life insurance is something most people buy during a stable period of their lives. The expectation is that premiums will always be manageable. But layoffs, medical expenses, divorce, inflation, or retirement can quickly change that reality. When money gets tight, life insurance premiums are often one of the first bills people consider skipping.
Before you stop paying, it is critical to understand your options. Letting a policy lapse is usually the most expensive mistake you can make.
What Happens If You Stop Paying Premiums
If premiums are not paid, the policy enters a grace period, usually 30 to 60 days depending on the insurer. If payment is not made before the grace period ends, the policy lapses. Once lapsed, coverage ends and the insurer has no obligation to pay a death benefit.
In many cases, years or decades of premium payments are lost with nothing returned.
Reinstating a lapsed policy is often difficult. Insurers may require:
New health disclosures
Proof of insurability
Higher premiums based on age
Denial of reinstatement altogether
This is why doing nothing is rarely the best choice.
Option 1: Ask a Beneficiary or Family Member for Help
One often overlooked option is asking a spouse, adult child, or other beneficiary to help cover premiums temporarily. While beneficiaries do not control the policy, they may be willing to contribute if losing the coverage would affect their financial future.
This approach can work well if the hardship is short term and the policy is otherwise valuable to keep in force.
Option 2: Use the Policy’s Cash Value
If you own a whole life or universal life policy, it may have accumulated cash value. This value can sometimes be used to:
Pay premiums automatically
Cover premiums for a limited time
Be borrowed against
Be partially withdrawn
Using cash value can keep the policy active while you stabilize your finances. Be aware that loans and withdrawals can reduce the eventual death benefit.
Option 3: Surrender the Policy for Cash
Permanent policies usually allow you to surrender the policy and receive a cash payout known as the cash surrender value. This amount reflects premiums paid minus fees and outstanding loans.
While surrendering ends coverage permanently, it is often better than letting the policy lapse with no return at all.
This option makes sense when you no longer need coverage or cannot reasonably afford to keep it.
Option 4: Consider a Life Settlement
In certain situations, selling the policy may provide more value than surrendering it. A life settlement involves selling your policy to a third party who takes over premium payments and eventually collects the death benefit.
This option is typically available to older policyholders or those with serious health conditions. It is more complex than surrendering a policy and often requires professional guidance, but it can provide a meaningful lump sum when premiums are no longer affordable.
Questions to Ask Before Making a Decision
Before letting a policy lapse, ask yourself:
Is this financial hardship temporary or permanent?
Is the policy term or permanent?
Does the policy have cash value?
Is there someone who can help pay premiums short term?
Would selling or surrendering the policy preserve value?
Each policy and situation is different. The right decision depends on your financial goals, health, and family needs.
Do Not Let a Policy Lapse Without Exploring Alternatives
Allowing a life insurance policy to lapse often results in the worst outcome. Years of payments disappear, and replacing coverage later may be impossible or unaffordable.
If you are struggling with premiums, explore every available option before coverage ends. In some cases, professional advice from a financial advisor or life insurance attorney can help you preserve value or avoid irreversible mistakes.