The idea of a life insurance policy can be overwhelming and often brings about feelings of fear or confusion. When buying a burial life insurance policy, some of this can be eliminated by understanding the basics.
Simply stated, a burial insurance policy is a contract between the insurance company and the insured. The insurance company promises to pay out a death benefit should the insured pass away, and the insured promises to pay the monthly payment agreed upon for the specified death benefit.
It’s not unusual for individuals to have questions about life insurance before, during, or after purchasing a policy. One common question is, “Can the insurance company cancel my policy at any time?” The answer to this question is no. However, there are occasions when the insurance company can cancel your policy. Let’s take a look at three common reasons for cancellation.
The first and most common reason that an insurance company cancels a policy is the insured’s failure to make monthly payments. Most insurance policies have a 30 to 60 day grace period for payments. However, if the grace period is exhausted, the insurance company can cancel the policy. Unfortunately, this often happens by accident as the insured simply overlooked the bill.
In order to prevent missed payments, we highly recommend our clients set up their insurance policies utilizing an automatic bank draft or the automatic payment option from a checking account. This is the best way to prevent human error. If for some reason the funds are not available for payment, it is very likely the insured will receive notification from the bank.
The second reason an insurance company can cancel a policy is due to a fraudulent application. If it comes to light that the applicant lied on any part of the application, the insurance company has the right to cancel the policy. This mechanism protects the insurance company from individuals attempting to lie about their health risk in order to obtain a policy for which they would not qualify.
The best way to avoid this is to simply answer all questions on the application to the best of your knowledge and ability. If you’re confused or need clarification for an answer, you should not submit the application until you have the correct information.
The third reason for cancellation is fairly rare. If an insurance company files bankruptcy or closes its doors, all policies will be cancelled. In some situations another insurance company will step in and take over the risk, in which case your policy would continue with the new company.
There is no way to rule out this possibility with certainty. This is why it’s important to investigate an insurance company’s financial strength prior to purchasing a policy. Companies are given a financial grade based on their ability to pay out claims should individuals pass away. The better the rating, the less likely the company will close its doors.
Hopefully, this information clarifies if and when insurance policies can be cancelled. When purchasing a burial insurance or whole life insurance policy, we recommend that you speak with an insurance agent with whom you have established a comfort level. If at any point during the process something does not feel right, you always have the right to walk away.
If you have further questions or concerns, feel free to contact one of our insurance professionals at 866-699-1884. We are licensed in most states and will be glad to assist.