What Happens If You Can’t Afford Your Life Insurance Premiums?
If you stop paying life insurance premiums, your policy may lapse and your coverage will be terminated. But before letting it lapse, consider other options—such as using the cash value, selling the policy, or getting help from a beneficiary—some of which may allow you to retain value or transfer the benefit.
Life insurance is one of those financial tools that people invest in with the future in mind. You may have purchased your policy during a time of financial security, with every intention of maintaining it long-term. But life doesn’t always cooperate with those intentions. Job losses, medical bills, or other financial emergencies can leave you unable to pay your monthly or annual premium. If you're struggling to keep your policy in force, it’s important to understand your options—because doing nothing is usually the most costly path.
Option 1: Stop Paying Premiums and Let the Policy Lapse
This is unfortunately what many people do when money gets tight—but it’s also the worst-case scenario. If you stop making premium payments, your life insurance coverage will lapse after the grace period expires (usually 30–60 days, depending on the insurer). Once lapsed, the policy becomes void, and the insurance company has no obligation to pay out any death benefits. That means all your years of premium payments may be forfeited with nothing in return. Worse yet, reinstating a lapsed policy is rarely simple. Most insurers require a new application, proof of insurability, and sometimes even higher premiums due to age or health changes.
Option 2: Ask a Loved One or Beneficiary to Help Pay
In some cases, a spouse, adult child, or another named beneficiary may be willing to help you cover premium payments. After all, they may stand to receive the death benefit. It’s not uncommon for beneficiaries to chip in, particularly if the policy’s loss would affect their financial future. Although they typically have no legal right to enforce your keeping them on as a beneficiary, a mutual understanding can make this a reasonable short-term solution until you're back on stable financial ground.
Option 3: Use the Cash Value or Take a Surrender Payment
If you have a whole life or universal life policy, it may have built up cash value over time. This is money that can be borrowed against or withdrawn. You can also surrender the policy entirely in exchange for its cash surrender value—a lump sum that represents the amount you’ve paid in, minus fees. This option gives you some return on your investment, but comes at the cost of permanently ending the policy. Additionally, any unpaid loans or early surrender may reduce the final amount. Still, it's often better than walking away with nothing.
Option 4: Sell Your Policy in a Life Settlement
If you’re over the age of 65 or terminally ill, you may qualify for a life settlement, where a third party purchases your life insurance policy in exchange for a lump sum (typically more than the cash surrender value, but less than the death benefit). The buyer becomes the new owner, pays the future premiums, and eventually receives the death benefit. This route can be difficult to navigate, and not all insurers allow policy transfers, so legal and financial guidance is strongly recommended. Still, it can provide much-needed cash while removing the burden of premium payments.
Before Making a Decision, Consider These Questions:
Is this a temporary financial setback or a long-term issue?
Do you have a permanent policy with cash value?
Is there someone willing to help cover premiums temporarily?
Would selling the policy provide more value than canceling it outright?
Don’t Let Your Life Insurance Go to Waste
Letting your life insurance lapse may seem like the simplest solution when money is tight, but it could cause more long-term financial loss than short-term relief. Always exhaust your alternatives before walking away. In some cases, a consultation with a financial advisor or a life insurance attorney can uncover solutions you hadn’t considered. If you’re dealing with a life insurance delay, claim denial, or policy lapse dispute, our legal team is here to help.