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Discontinuing Disability and Life Insurance
Old 06-24-2010, 10:33 PM   #1
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Discontinuing Disability and Life Insurance

At what point in ER can one feel reasonably "safe" in discontinuing disability and term life insurance policies. I figure if you've reached "retirement" and have an adequate funds for funeral expenses in your portfolio what's the purpose in continuing to pay these two premiums.
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Old 06-24-2010, 10:50 PM   #2
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I will discontinue life insurance as soon as I retire - by definition if I have enough to support myself and my family while I am alive there will be enough to support my family without me (lower costs). At that point the premium is 100% wasted money. This works for me because (i) there will be no or very little estate duty to pay and (ii) there are no social security or pension type benefits that will be cut off on my death.

Disability insurance is provided by my employer and I will lose coverage as soon as I cease to work. Whether we replace it will depend on how much it costs at the time of retirement.
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Old 06-25-2010, 07:09 AM   #3
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Disability is easy. If you no longer need to work for money, cancel. It is disability INCOME insurance, after all.

Life ins is a bit trickier. You may still need LI if you croaking would end a stream of payments your survivors depend upon, or if you need LI for estate planning purposes. If neither of these apply, I would cancel.
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Old 06-25-2010, 07:23 AM   #4
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Once you don't need them, why pay the premiums? I haven't ever carried either insurance on myself as I didn't get married until I was 30 and at that time the numbers were very iffy.....
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Old 06-25-2010, 07:56 AM   #5
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We plan on keeping term until the mortgages are paid off. At that point then it would not be needed.
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Old 06-25-2010, 08:30 AM   #6
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I'm not even sure a disability policy will pay out if you are no longer working. As noted above, it is for loss of income. No income, no loss. You'd have to check the language in the policy.

As for life insurance. I canceled ours when our assets were sufficient to provide adequate income/cash flow for my spouse. Our house is paid for and we have no other debts.
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Old 06-25-2010, 08:55 AM   #7
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I agree with all the answers given. Also, don't forget to look at your automobile insurance policy. You can eliminate "loss of wages" premiums.
I always look at how much would DW get per month or annually when I pass away and would that be enough to sustain her and allow her to live in the life style in which we are living. I wouldn't want her to have to move because she can't afford the taxes or upkeep on the house. Since we have no debt, I try to stress the importance of that position. At my age I couldn't afford the term insurance premiums to supplement any loss of income.

I called Social Security and was told that when I die, her SS amount goes away and is replaced by my Social Security which is more than double hers. She also would get 75% of my pension. Those funds plus income off CD's would give her enough to maintain our current lifestyle.
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Old 06-25-2010, 08:58 AM   #8
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Cancel them the moment you are financially independent (retired or not). If you're not working, then if you die, your spouse's expenses will go down.
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Old 06-25-2010, 08:59 AM   #9
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I held onto my disability coverage for about 6 months and then let it go. Still have my LI policy though.

Wish I still had the disability ins. as I'm back working PT but I don't think I really need it.
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Old 06-25-2010, 09:50 AM   #10
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as others have suggested, study the impact of pension and SS payouts when either spouse passes away before canceling your term-life.

ESPlanner lets you model survivor-ship and I hear they have a free online version now, so give that a try.
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Old 06-26-2010, 12:42 AM   #11
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Also consider that if your auto policy says to work or school, if you change to no to work or school driving you can save some money because, you are not exposed to the commuter traffic.
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Old 06-26-2010, 05:53 AM   #12
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I may missing something here. I am FI and retiring next month. I have reviewed my 2 life insurance policies and have decided to continue with them. One of them is already "earning" money for me in that the cash value and dividend is above the amount paid to date and the dividend earned each year is more than the premium paid each year. So, I decided to continue with this and review it again in 5 years time. The other will be able paid up at age 60 (I have still 10 more years to go). I have major disease Benefit (i.e. critical illness claim) as a Rider on this policy. So, I will want to continue with this policy until I am very much older. I have no dependents. Reading the thread above, I am now asking myself whether I have missed something in my decision.
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Old 06-26-2010, 06:24 AM   #13
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I think people have been talking about stopping a term life policy, not a whole life policy like you apparently have.
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Old 06-26-2010, 08:28 AM   #14
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Quote:
Originally Posted by Moscyn View Post
I may missing something here. I am FI and retiring next month. I have reviewed my 2 life insurance policies and have decided to continue with them. One of them is already "earning" money for me in that the cash value and dividend is above the amount paid to date and the dividend earned each year is more than the premium paid each year. So, I decided to continue with this and review it again in 5 years time. The other will be able paid up at age 60 (I have still 10 more years to go). I have major disease Benefit (i.e. critical illness claim) as a Rider on this policy. So, I will want to continue with this policy until I am very much older. I have no dependents. Reading the thread above, I am now asking myself whether I have missed something in my decision.
So you have no dependents and you still wantto maintain and pay into life insurance policies that have cash value you could put into a different type of contract with much lower expenses? OK, whatever turns your crank.
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Old 06-27-2010, 12:45 AM   #15
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Keep in mind that the average person stays in a home for about 7 years before moving. If you think there is any chance you would move into a new/bigger house at some point, I wouldn't be so quick to dump the life insurance.

I sell life insurance and I can tell you that things often don't play out the way you intended. Seen it time and time again where people have unforeseen expenses and spend down much of their retirement money. How many people who planned on retiring at a certain age lost their jobs in the recession and were forced to spend down their savings since there was no income?

If you are not close to being 100% financially independent for the rest of your life without working (i.e. all debts paid and a large cushion for retirement $$ draw-down), keep the insurance in force for a period of time that is a little longer than you are expecting. In a worst case scenario with the insurance, you spent a little extra money by keeping it in force. In a worst case scenario without the insurance, you might find yourself in a pickle later on if your health changes and you find the need to buy more coverage. That would cost you A LOT more in the long run.

What you may want to consider at some point is a long term care policy, but I'm sure that suggestion could turn into a 5-page post on its own...
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Old 06-27-2010, 07:55 AM   #16
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Wow, keep trying to pump up those trail commissions...
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Old 06-27-2010, 10:12 AM   #17
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I have no reason to insure what my spouse & kid don't need. I canceled all of my life insurance the day I started drawing a pension. We have enough assets and she'll eventually have her own pension, so we signed away each other's survivor benefits.

We have homeowner's, landlord's, and umbrella liability insurance. We have vehicle liability insurance but we don't even carry collision/comprehensive insurance.

At the suggestion of a lawyer who'd seen an unfortunate incident, we carry UIM/UM car insurance just in case our kid is disabled for life by a UIM/UM driver. When she's off our policy then we'll revert to just liability.

I don't carry dental insurance either.
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Old 06-27-2010, 10:29 AM   #18
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Wow, keep trying to pump up those trail commissions...
Most companies don't pay trail commissions on term insurance and the ones that do are like 2% and only for the first few policy years. The companies that DO pay trail commissions give you less in year one than other companies that don't pay trails.

So unless you're talking about a policy with a $100,000 annual premium, 2% isn't going to buy more than a lunch since the average premium is about $1000. If you're talking year 15 of a 20 year term policy here, there is no trail commission. Give it a rest with the "all insurance agents are only out for themselves" attitude.
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Old 06-27-2010, 10:41 AM   #19
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I have no reason to insure what my spouse & kid don't need. I canceled all of my life insurance the day I started drawing a pension. We have enough assets and she'll eventually have her own pension, so we signed away each other's survivor benefits.

We have homeowner's, landlord's, and umbrella liability insurance. We have vehicle liability insurance but we don't even carry collision/comprehensive insurance.

At the suggestion of a lawyer who'd seen an unfortunate incident, we carry UIM/UM car insurance just in case our kid is disabled for life by a UIM/UM driver. When she's off our policy then we'll revert to just liability.

I don't carry dental insurance either.
Dental insurance is not insurance, it's a pre-payment plan, but it sounds like you know that already.

I would guesstimate that 30% of our clients buying new life insurance policies over age 60 have a pension. There are many reasons people still need LI after beginning to draw a pension. Here's another one - divorce and/or re-marriage. This is by far the biggest kink in everyone's life plans and can really, really screw up not only your retirement, but if you get re-married, now you've got two people dependent on your income (ex-wife always pushes for life insurance to be required in the divorce settlement) and new wife does not have your survivorship benefit. So new wife wants a big LI policy in case your pension goes bye-bye.

In any case, I always suggest that people in reasonably good health purchase at least a small insurance policy to cover final expenses ($25-100k depending on age). You have a 100% certainty of dying at some point. Are you better off paying for a funeral 100% out of your own pocket or paying for it little by little each year? As an example, $25k guaranteed forever on a 55 year old male in generally good health (preferred rates) would only be $436/year. Even by age 85 you've only spent $13k on the insurance and the benefits are tax-free.
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Old 06-27-2010, 12:35 PM   #20
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To get back to the OP's question, I would guess that the decision to cancel a paid up whole life policy depends largely on the relative performance (net of mortality charges) of the policy versus an alternative investment of the money. As Brewer hints at, the alternative will likely be better (especially if you don't need the "insurance" component).
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