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If you face any unexpected cash crunch or financial emergency, you can stop your insurance premium payment for a period, while still keeping your insurance in force. Such ‘break’ allow you to attend to your financial needs and to continue with the premium later on once things are settled.

The ‘premium break’ is usually applicable to whole life, endowment and investment-linked insurance that have cumulative any cash value.

Traditional Life Insurance
When the premium payment stops, and provided your policy has enough cash value, the insurance company with automatically advanced you with a loan called automatic premium loan for the premium. Pending on the company, the loan typically carries an interest rate between 5-7%. As long as your policy’s cash value has enough to cover the premium loan, your policy is still in force and you continue to receive the bonus and cash value accumulation. The down side is, you have to pay the loan interest.

Investment-Linked Insurance
When no premium is received, your investment in the form of various unit funds will be liquidated to pay for the continuous coverage. The coverage will be enforced as long as your underlying unit funds have any value. But since you are not paying any premium, it also means your are not investing any more – not buying any unit for that period of time. But unlike the whole life insurance, you don’t have to pay any administration fees or interest charges.

Conclusion
If you stop paying the premium and do not repay the amount, you will receive less when you make any claim - the accrued interest and the overdue premiums will be deducted from your claim amount. For the investment-linked insurance, the loss is potentially higher because unit funds are liquidated subjects to market volatility.

The ‘premium break’ is just an option for you, in case there is an emergency. If you have the means, it is best to continue with the premiums – to continue built up the cash value available for the future.