Change the Dividend Option
For any permanent life insurance policies that pay a dividend, there are several options for how dividends will be used. The most popular one is to purchase a paid-up addition, which means small amounts of additional coverage that are fully paid up when purchased.
The good news for PUAs is that they are quite favorably priced by insurers for the additional insurance because there is no acquisition cost to it. Because of this, most life insurance policies set this as the default option.
The bad news for PUAs is that if there is a compounding loan, buying more insurance while the main policy is in trouble is not a good strategy.
Now the good news again - the dividend option can be changed and redirected to pay the loan interest or principal or both, all it needs is a call to the insurance company's customer service to request the change. If the dividends are large enough, they may eventually payoff the loan, allowing the policy to sustain. After that, the dividend option can be changed to purchase PUA again.
In our next blog post, we will discuss another solution.