Exemptions to the Individual Mandate
There are some cases where there is no penalty to not having coverage.
A nonforfeiture option is something you can choose instead of simply dropping your insurance policy. These only work if you have a type of whole life policy. If you can’t make the premium payments, your insurance will quit covering you. These are two options when you can’t make the premiums but still want life insurance coverage:
This option provides you with a fully paid-up life insurance policy. However, that policy is for a smaller amount than the original policy. Here’s how it works:
You already have a whole life insurance policy. Also, you’ve been paying premiums on that policy for years. With whole life policies, you pay premiums for so many years, and then don’t have to anymore. What this does is takes the cash value you’ve paid for already through premiums and buys a smaller plan. With this smaller plan you’re “paid up”. In other words, you don’t have to keep paying premiums.
This option is useful if you wish to discontinue premium payments (such as at retirement age) and a smaller amount of insurance is satisfactory.
This nonforfeiture option provides that you may use the cash value of your policy to purchase term insurance equal to the “face amount” of the policy. (The face amount is the amount that will be left as the death benefit)
The length of time the term insurance remains in force will depend on the amount of cash value as well as other factors, such as the sex of the insured and attained age of the insured at the time the policyowner elects the extended term option.
For example: Say your policy had a $100,000 face value, but you couldn’t make premium payments anymore. You could, in effect, buy a term life policy with your $100,000. This way, you don’t just lose coverage.
In Either of These Options, You Are Applying the Cash Value of Your Policy.
By law, the value of the life insurance under these options equals the cash value at the time the option goes into effect.
If either nonforfeiture option goes into effect, all rider coverage and premiums cease.
If your premium has not been paid by the end of the grace period, one of these two options will automatically go into effect.
This article is published on KansasMoney.gov. Find more information by contacting these state agencies: