Do Insurance Companies Have To Pay Back Equity On A Lapsed Whole Life Insurance Policy?

My husband and I took out a policy on him in August 2003. It was a whole life insurance policy that we paid on for 8 years and 5 months at 66.00 per month. We got into a financial situation, our policy lapsed in February 2011. Does insurance companies have a certain liability to pay back equity to the customer at least?

  1. 85 POINTS
    Chris Graham
    Agent/Owner, Graham Insurance,
    It may depend on how the policy was structured. Very often, the insurance company will use any cash value that has built up to keep the policy in force if the policy owner stops making premium payments until there are no funds left. If you initiated the policy cancellation (surrender), you may be entitled to the cash value less surrender charges.

    It can't hurt to call the insurance company or your agent and ask.
    Answered on April 11, 2013
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  2. 12689 POINTS
    Ted Ratliff
    Owner, SFS Associates,
    The only "equity" is the cash value, not the face amount. Since the policy is only 8 years old there is probably not much cash value however you do have options. If you do nothing the policy goes on extended term. This means the policy is in force for a period of time until the cash value is used up. You can take a reduced paid up option, but I doubt if you have enough cash value to make this worthwhile. You can cash surrender the policy for whatever the cash value is. .All of these options are spelled out in your policy.
    Answered on April 12, 2013
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  3. 11783 POINTS
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    Larry GilmorePRO
    Agent Owner, Gilmore Insurance Services, Marysville, Washington State
    Until you notify them of your cancellation, unless stated in the application process, insurance companies will draw down the cash values to maintain the policy "in force" as long as possible. They cannot decide to "cash you out" because you've missed some premiums. If they did, they would basically be breaking the law. It is up to the insured to close out a policy and request any proceeds from such a choice. If the insured says nothing an insurance company has to treat the policy as in force drawing off of cash values to maintain coverage. Surprisingly a lot of people do decide to just let their policies "run out". So unless you tell them, they don't know.
    Answered on April 12, 2013
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