What happens when you stop paying premiums depends on the type of policy you own. For all policy types, there is a grace period (typically 30-31 days in Tennessee) during which coverage remains in force even without payment. After the grace period, the consequences differ significantly between term and permanent policies.
For term life insurance, if you stop paying premiums and the grace period expires, the policy lapses and coverage ends. There is no cash value to fall back on. Some term policies offer reinstatement provisions that allow you to reactivate the policy within a specified period (often 1-5 years) by providing evidence of insurability and paying all past-due premiums with interest.
For permanent life insurance (whole life, universal life, IUL), the policy's cash value provides several options when premiums stop. If an automatic premium loan (APL) provision is active, the carrier automatically borrows from cash value to pay premiums, keeping the policy in force until cash value is exhausted. Without APL, the policy defaults to the nonforfeiture option specified in the contract — typically extended term insurance (full face amount for a limited time) or reduced paid-up insurance (reduced face amount for life).
Universal life and IUL policies are particularly sensitive to premium cessation because the cost of insurance is deducted from cash value each month. If premiums stop and cash value is insufficient to cover the monthly costs, the policy can lapse even if there is some remaining cash value. IUL policies feature a 0% floor and cap rates typically in the 8% to 12% range, with policy fees that affect cash value. Guarantees are backed by the financial strength and claims-paying ability of the issuing carrier.