Often people buying life insurance do not consider the ramifications of defaulting on payments. Yet since life insurance is a long-term investment it is something that should be considered. There are many different life insurance policies so there are also different penalties for defaulting on a payment. It must be remember that these are penalties and before entering into a contract the policy holder should ensure they can maintain the premium over the life on the policy. Life-insurance premiums are calculated differently depending on the type of policy and the individual taking out a policy. Customers should be sure to get clarification of the costs from the insurer. Term insurance is much cheaper than whole-of-life insurance. The penalty for term insurance, because it does not involve cash holdings, is the cancelation of the policy. Most insurers want to keep customers so they usually extend policies for a short period until payments are received. The extensions are usually about one month. A policy holder should contact the insurer if they can’t pay the premium and negotiate a deal to avoid cancelation of the policy. The older the policy holder the more expensive the premium, so it is important not to default because a customer will be reassessed to start a new policy. With whole-of-life insurance, defaulting becomes more complicated as there is cash accumulated. In most cases the policy is not voided as the premium is taken from the accumulated cash. Once this cash reserve is extinguished the policy is cancelled. In some cases the insurer will issue a loan to maintain the policy. These loans have an interest change and there is a penalty fee. Apart from higher costs of new policies there are no problem being re-insured for life insurance. Not many insurance companies make assessments based on a customer’s insurance history.