Selling life insurance is a rewarding experience. After all, you are helping people provide financial security for their loved ones after they’re gone. But did you know that nearly 99% of term life insurance policies never pay out on a claim? In an article appearing in Life-Benefits.com, experts in a Penn State University study revealed that the main reason for gaps in life insurance coverage is due to policy lapses.
A lapsed or cancelled life insurance policy not only leaves clients without valuable coverage but can also result in a reversal of commissions and impact your agency’s retention. As an insurance professional, you can help prevent life insurance policy lapses and cancellations by considering the following five tips.
- Make premium payments automatic. Setting up automatic monthly drafts from a bank account can help prevent an unintended policy lapse. Be sure to discuss with policyholders the best day of the month for premium payments to come out of their account. Let them know that if they ever need to make a change to the date, they should provide notice at least 30 days in advance.
Tip: Sometimes, making a premium payment at the last minute can’t be helped. Provide policyholders with options for paying their life premiums. For example, can payments be made at your agency? What about over the phone through a customer billing center or online at the carrier’s website?
- Point out the policy’s grace period. Typically, the grace period for a life insurance policy is 30 days following the premium due date. If your clients can’t make a payment on the due date, let them know that they may have some flexibility with their premiums — depending on how their policy is written. Make it clear that if their policy lapses, their life insurance coverage ends and there will be no benefits paid to their loved ones should they die during this time.
Tip: If a policy lapses for nonpayment, appeal to the carrier to see whether it can be reinstated. Be sure to get the total cost the insured will need to pay to reinstate the policy, including back payments, accrued interest and fees, if any.
- Schedule annual life insurance reviews. After the sale, it is important to regularly review life insurance policies with your clients. Policy reviews demonstrate the importance of maintaining a life insurance policy and provide an opportunity for clients to ask questions or to update or make changes to their policies to ensure they have the coverage they need. Reviews also go a long way when it comes to building trust with your insureds.
Tip: Try and schedule policy reviews at least 90 days prior to the contract’s expiration date. Consider a policy checklist that can be mailed out to clients in advance of your review or for those who are unable to meet in person.
- Explore the option of paying premiums with a policy’s accumulated cash value. Because permanent life insurance offers cash-value accumulation, insureds who have a whole, universal or variable life policy may have the option of tapping into their policy’s cash value and using that money to cover their premium expenses.
Tip: Explain to clients that while this may be an option, depleting all of the accumulated funds in their permanent life insurance policy may result in a policy lapse, causing their coverage to end.
- Provide options for expiring term policies. Unlike permanent life insurance, a term policy is only in effect for a specific period of time. Some clients are fine with letting their policy expire after their term is up because coverage is no longer needed. For others, however, the need for coverage is still there. If a client’s term policy is coming to an end and he or she wants to continue having life insurance protection, see whether you can provide some options. For example, does the term policy have a guaranteed renewable feature that allows the insured to extend his or her coverage beyond the expiring term? What about a conversion rider to convert all or a portion of the term policy into a permanent policy, such as whole or universal life?
Tip: While you can’t do anything about an expiring term policy, you can use this opportunity to discuss other options, including writing a new policy that best fits a client’s current needs.
It may not always be possible to prevent a life insurance policy from lapsing, canceling or expiring. The main takeaways from these tips are to always keep the lines of communication with your clients open and, for insureds who want to maintain their life insurance, to be a resource in helping them find new options for securing coverage.
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