John was an union member in the Skilled Trades, on the job for 25 years, when he was badly injured while on the job. He was hospitalized for several months and receiving Disability while his wife, Joan, was doing her best to manage the household and take care of their children’s needs.
Trying to keep up with their bills became burdensome for Joan. The monthly life insurance premium increased dramatically after the accident. In fact, the monthly cost doubled. To save some money Joan decided to only pay a fraction of the newly increased monthly life insurance premium.
The family was devastated when John’s passed two years later.
The situation deteriorated even further. As a direct result of paying only a fraction of the life insurance premium the insurance pay-out was only a fraction of the original coverage. The proceeds helped pay down a portion of the mortgage balance, but left Joan and the kids in a very difficult financial position.
Summary: Term life insurance policies will pro-rate pay-outs or even lapse (cancel) the policy if premium payments are not made timely.
Discussion:
- What questions should be asked before making adjustments to life insurance payments?
- Do you understand the consequence of a reduced payment on a term life insurance contract?