When a Policy Is at Risk

A policy may be at risk when premiums are not paid on time.

If premiums are missed:
• The policy may enter a grace period
• If unresolved, the policy may lapse

Agents should review available options before a lapse occurs.

Non-Forfeiture Options – Overview

If a policy has accumulated cash value and premiums cannot be paid, non-forfeiture options may apply.

These options allow coverage to continue using the policy’s cash value.

Reduced Paid-Up Insurance

Reduced Paid-Up Insurance uses the policy’s net cash value to purchase a smaller, fully paid-up policy.

Key points:
• No further premiums are required
• Coverage continues for life
• Death benefit is reduced based on age and available cash value

Extended Term Insurance

Extended Term Insurance uses the policy’s cash value to purchase term insurance equal to the original face amount (minus any loans).

Key points:
• Coverage lasts for a limited period
• If death occurs during the term, the full face amount is paid
• Coverage ends when the term period expires

Automatic Non-Forfeiture Option

If no premium is paid and the grace period ends:

• Extended Term Insurance applies automatically if values are available
• If not available, Reduced Paid-Up Insurance applies

Policyholders have 60 days from the missed due date to choose a different option.

Policy Reinstatement – Overview

Policies that have lapsed may be eligible for reinstatement, subject to policy provisions and state rules.

Reinstatement – Standard Issue (SI)

Standard Issue policies may be reinstated within 3 years after lapse.

Requirements include:
• Completed reinstatement application
• Evidence of insurability
• Payment of overdue premiums plus 6% interest (compounded annually)
• Payment of any outstanding policy debt plus interest

Reinstated policies are contestable for 2 years from reinstatement due to misrepresentation.

Reinstatement – Guaranteed Issue (GI)

Guaranteed Issue policies may be reinstated within 5 years after lapse.

Requirements are similar to Standard Issue.

Reinstated policies are contestable for 2 years from reinstatement due to misrepresentation.

Policy Loans – Overview

Whole life policies may allow policy loans using available cash value, unless the policy is in Extended Term Insurance.

Policy Loan Rules

Key loan rules:

• Loan amount is based on net cash loan value
• Interest is charged annually at the policy rate
• Unpaid interest is added to the loan balance

Outstanding loans plus interest are deducted from the death benefit.

Automatic Premium Loan (APL)

If selected, Automatic Premium Loan allows the company to loan funds to cover unpaid premiums at the end of the grace period.

If cash value is insufficient:
• The policy will terminate
• Remaining cash value is applied to non-forfeiture options

When a Policy Terminates Due to Loans

If total indebtedness equals or exceeds the policy’s cash value:

• The policy will terminate after required notice
• Coverage ends unless action is taken