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What happens to my Life Insurance if I stop paying premiums?


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Q:

Hello, I have a Premium Plan Insurance since 2003,but unfortunately it was stopped due to I lost my Job in Hong kong, I am from Philippines, by that time i did not continued to for contribution.my Question is that Premium Life insurance I had started has already forfeited?? Please advise, Thank you.

A:

What a great question!

Life insurance is a great deal more complicated than, for example, car insurance or medical insurance. In both these cases, it doesn’t matter how long you’ve held the policy or how much money you have spent on premiums, if you don’t pay for the protection you are receiving under the insurance plan the coverage will cease.

For many general insurance and casualty insurance products there may be some leeway given for late payers, depending on the insurer you are purchasing a plan from. For a product like medical insurance, however, payment is usually demanded prior to coverage commencing and failure to pay the required premium will result in the policy not being activated.

Life insurance is another question entirely.

Without knowing more about the specifics of your policy we are unable to give you specific advice on your situation, and would recommend that you speak to an expert life insurance broker for the course of action which would be in your best interests based on the life insurance policy which named you as the life insured.

Generally, when talking about life insurance in Hong Kong, it is important to understand that there are two types of life insurance premium which could apply to your policy; Natural Premium Pricing or Level Premium Pricing.

 

Natural Pricing

Natural premiums for life insurance change every year (much like health insurance premiums) dependent on current risks posed by the policyholder to the insurer. As such, premiums under a natural price life insurance plan will normally increase each year – because the risk of a claim increases due to the age of the policyholder.

Level Pricing

Under a life insurance plan which is priced on a level basis the premium is determined at the outset of the policy and remains the same for the life of the coverage.

Under a level premium life insurance plan it will normally take a number of years, depending on how much coverage is being offered and the various rider benefits being provided, before the policy “matures” enough to fully cover the risk being insured.


The distinction between the two premiums is important because only a policyholder is able to cancel a life insurance contract (either through a formal cancelation or the decision to stop paying premiums). In the event that your policy used a Level Premium pricing model, depending on the length of time that you paid into the plan, it may have matured to reaching a “cash value.”

At this stage it is important to note that Term Life Insurance plans in Hong Kong have no cash value, and a failure to pay the required premium for a Term Life policy will result in the cancelation of the policy.

If your policy reached this stage in its lifecycle then one of two things would normally happen.

 

Non-Forfeiture

In some cases when a policy has accumulated a cash value, that amount can be used to offset missed premium payments. This prevents the policy from lapsing, and uses the growth of the policy to prolong its continued protection.  

You can learn more about this by clicking Non-Forfeiture Benefits for Hong Kong Life Insurance.

Paid Up Coverage

Should the policy fully mature then the cash value of the plan may be sufficient for your needs. As such ceasing payments after the cash value has been realized will mean that the policy is fully paid and will provide the stated coverage after an adjustment is made to the death benefit in line with the plan’s value.

Basically, you will receive a lower death benefit than if you continued to pay into the policy but the plan will still be active.

 

There are a tremendous number of variables and a great deal of complexity within life insurance products, and the information above is just a general starting guide to help give you some further clarification as to what may be happening with your life insurance. If it still exists.

The best possible course of action you can take now is to investigate what type of life insurance policy you held, the insurance company underwriting the policy, and how much premium was paid into the plan. From there you should go and speak to the insurer directly, or use a broker for an impartial 3rd party assessment of what is in your best interest.

Should you have any additional questions about life insurance in Hong Kong, please feel free to ASK CCW!


Answered on: 4 March, 2019 02:23


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