What Options Protect The Insured From An Unintentional Policy Lapse For A Nonpayment Of Premium?
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1) If you are paying other that automatic bank draft (i.e. If you get an invoice in the mail and pay by check), choose to put a secondary mailing address on your application. Having correspondence go to two places can help protect you if mail to one of those addresses is not deliverable.
2) Monitor your policy payments online, if you can. At least, monitor your bank drafts so you can see if a payment did not go through for one reason or another.
3) Some agents will notify you if your premium is late. The insurance company may also send reminders. Open all correspondence from your agent and/or carrier so you do not miss important reminders.
With whole or universal life, you can opt to have the premium paid by the cash value if you forget a payment. However, this can go on for a long time, depleting your policy's cash value and still resulting in lapse of the policy. With term insurance, there is no "padding" at all, and your policy will simply lapse after two months of nonpayment. Also, there is no rider or other way to prevent lapse, legally.
So you can best protect your policy by treating it as a valuable asset and monitoring it closely. If you move, notify your agent and the insurance company right away. If you change banks, call the insurance company to tell them. If you had $250,000 under your mattress, you'd be sure to take it with you if you moved. If you look at your life insurance that way, you will guard it and never let it lapse.
But there are things that you can do to help prevent this from happening. The writing of the application and the company selected are the best places to start. We look at several cars before making a purchase, looking for the one that fits and protects us best; we do the same looking for apartments or homes. We should absolutely do the same with our life insurance! There are companies out there that have built in protections for the policy owner. I write for one that upon lapsing, converts the whole life policy to term coverage, the face value (the amount paid upon death) stays the same and the length of the term is determined according to how much has been paid in before the policy had lapsed. This allows the owner a chance to either keep the paid off term policy, or to keep coverage until the policy can be reinstated as a whole life policy. Ask the agent you are dealing with what the lapse policy is, and how you are protected before agreeing to buy the policy.
Other companies will offer the option of allowing a missed payment to be paid from the accumulated cash value in the policy. This will require you checking or signing off on this option, so be certain to ask your agent if this is available before purchasing the policy. As Ms. Mace pointed out, this can be a case of "good thing/bad thing", as the payment is treated as a loan against the policy's value, and if not taken care of in a timely manner can eventually bankrupt the policy, or greatly reduce the death benefit paid when the claim is filed. The insurance company will also charge interest on your payment loan, so it can become a big problem if not watched, but a life saver if needed.
Some other great prevention methods are to write down all of your payments, account numbers, and due dates. Keep them and computer passwords in a safe spot, where family members can access them in the event that you are unable to make your payments due to illness or hospitalization. Have a system in place to notify a family member if you are unable to make these payments - a secondary billing address, or a regularly scheduled visit or call that will allow you to stay in contact, and aware of issues. This is really your only protection against the lapsing of a term life policy, as they have no cash value to borrow against if needed.
It is really unfortunate that lapsing insurance policies are like repossessed cars; there today and gone like smoke overnight, along with everything you had ever paid on it. But knowing is half the battle, and prioritizing the health of your policy prioritizes the gift you leave behind to those you love. Thinking of it that way, as opposed to just another expense can really save some heartache later. Thank you for asking your question, and if there is anything more that I might help you with, please do not hesitate to reach out and contact me. May God bless and keep you!