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Life Insurance Gap: 5 Ways to Efficiently Close the Gap

Updated: May 13, 2018

While we can make every effort to remain diligent when it comes to life insurance, there are times when circumstances are not in our favor.

There are instances where a life insurance gap may develop in regards to your coverage.

A life insurance gap means that there is a period of time where you do not have adequate life insurance.

There are a variety of reasons why a gap could emerge, such as losing your job, relocating or being between different policies.

Whatever the reasons, it is important to look at the following ways you can go about closing the life insurance gap.

Consider Alternatives

If you were in a situation where your employer provided life insurance, losing your job may mean losing the insurance policy. While it is possible to retain these policies if you keep paying the premiums, this is not always possible for individuals who lose their income.

You do not want to find yourself in a situation where you are paying some money for a policy without fully knowing how it is benefiting you.

If you are in such a situation, it may be a sensible option to contact risk pools or credit unions. These institutions often have alternatives to typical life insurance policies. Someone at the credit union can walk you through their offerings and the related benefits.

But if you are going to consider these types of alternatives, you must do your research. Credit unions and risk pools have life insurance-styled offerings, but they are complex and not very easy to understand.

You do not want to find yourself in a situation where you are paying some money for a policy without fully knowing how it is benefiting you.

But as long as you complete your research and spend some time talking with individuals at the credit union, you should be able to find something that offers comparable protection to your previous policy.

Get a Term Life Insurance Policy

For those individuals who are not in the most stable of situations, getting a term life policy is favorable to a whole life insurance policy. Term life policies are cheaper, especially if you are older.

So make sure you are only using the term life insurance policy as a way to keep you protected while you figure things out on a personal and professional level.

You may want to consider a five-year term life policy, which will tide you over until your circumstances are more stable. While this will not give you long-term peace of mind and security, it will protect your family if something happens to you in the coming years.

But you must remain vigilant when it comes to term life insurance. The policy is cheaper than whole life when you compare the costs over five or ten years. But if you try to get term life on a permanent basis, you will end up spending more money.

This is because the insurance company is allowed to raise your premiums whenever you renegotiate the policy at the end of its term.

So make sure you are only using the term life insurance policy as a way to keep you protected while you figure things out on a personal and professional level.

Retirement Savings

Contrary to popular belief, there is more than one way to provide for your family after you pass away. If you are no longer in a situation where a whole life policy makes sense, you may want to consider investing more of your money in retirement savings.

Your savings may not be enough for them to live comfortably for five or ten years, but they will pay the funeral costs and their expenses for the months after your passing.

Even if you are taking simple steps such putting a certain percentage of your paycheck into a savings account, it is a step in the right direction. This will enable you to leave your family some money if something were to happen to you in the near future.

While you cannot compare the amount of money you will save to the lump-sum payments from life insurance, it is a strategy that will provide some financial comfort for your loved ones.

Your savings may not be enough for them to live comfortably for five or ten years, but they will pay the funeral costs and their expenses for the months after your passing.

If you begin saving at a younger age, you can ensure you are leaving a decent sum of money for your dependents.

Market Investments

Coupled with the concept of saving money for retirement, you can take the money you are saving and invest it in the financial markets. This is possible in a number of ways.

While there are risks associated with market investments, it is also the best way to grow your retirement nest-egg into a substantial amount of money.

There are specific retirement accounts an individual can open. You can also put your money in the hands of a mutual fund, where financial experts invest your money in different stocks, bonds and commodities.

While there are risks associated with market investments, it is also the best way to grow your retirement nest-egg into a substantial amount of money.

Now you may wonder whether there is a relationship between retirement savings and the money you can leave behind for your family after you pass away. While these savings are not going to completely make up for a lack of life insurance, they can add up to a decent chunk of cash.

If you pass away before or soon after your retirement age, the rest of your retirement savings can go to your spouse and/or children – the same way you would leave them money through a life insurance policy.

How to Prevent the Life Insurance Gap?

Now we have looked at some ways to potentially close the life insurance gap, but what about ways to prevent this gap from happening in the first place?

Not only do you get lower premiums when you are younger, but your whole life policy can provide significant cash value down the road.

The best thing you can do is plan your life insurance policy as soon as possible. Individuals who get a policy they can afford at a young age will stand a much better chance of retaining this policy for the rest of their lives.

Not only do you get lower premiums when you are younger, but your whole life policy can provide significant cash value down the road.

But you must remember to find the balance between a valuable policy and an affordable one. Too many people get an exorbitant life insurance policy, only to stop paying the premiums one or two years into its lifespan.

If you are serious about avoiding a life insurance gap, make sure your premiums are low enough that you could continue paying them even if there was a change in your financial circumstances.