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Collapsing Life Insurance

Collapsing Life Insurance

Life Insurance. Those words are enough to make many people’s eyes roll over into the backs of their heads. Some people think it’s boring. Others simply don’t want to think about the fact that death is involved in anybody’s collection of “life” insurance. Still, each month, provides hundreds of millions of dollars to widows, widowers, and children who otherwise would be impoverished without those funds.

Life Insurance for Dependents

While not needed by every family, life insurance provides financial security for many people. For those that have young children or grandchildren that they are raising, term or temporary insurance may be appropriate.

Life Insurance for Inheritance

For families who wish to leave an inheritance even if they live to a ripe old age of 80, 90, or beyond, permanent insurance may be an answer. For those that don’t know, permanent insurance has a level premium, may or may not build cash value, and is designed to be in force no matter when or how you leave God’s green earth. But many people who own so-called permanent insurance, may have purchased a policy that can collapse, even if all premiums are paid on time.

It’s Over At 85

Dear FedNav,

I am 70 years old. I purchased a permanent policy many years ago that has a $30,000 death benefit. I recently had the policy reviewed by a financial planner and he said that the policy (which I thought was permanent) is going to lapse at age 85 and not pay the death benefit! How can they do that and what do I do with the insurance now?


Dear Confused,

This predicament is one we are hearing more and more often. There may be hundreds of thousands of policies owned by the public that will lapse before someone dies, even though the person thought they were buying “whole life” permanent insurance and even though they paid all the premiums. The problem exists if the contract had an end date of age 85, 90, or 95 and/or the contract was written as interest sensitive “universal life.”

Review Your Policy

If you purchased permanent  “whole life,” “universal life,” and/or “variable life” permanent insurance years ago to pay for estate taxes or funeral expenses and it has not been reviewed for a while, we strongly suggest you have a financial planner or insurance agent who knows these products review them to make sure they will stay in force until you die as long as the premiums are paid. You can also start by calling the company and asking them this question: “Assuming I pay all my premiums on time, is this policy guaranteed to be in force when I die?” If the answer is no, you have a collapsing permanent policy. You may be able to change it to true “whole life,” but each case is different and one size does not fit all. Most importantly, don’t ignore your insurance.  Know what you own and take charge of your life insurance so you won’t be a victim of unsuspected policy collapse.

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