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Renew Term Life Insurance?
Old 09-04-2015, 11:52 AM   #1
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Renew Term Life Insurance?

Sixteen years ago (at age 49), after my second son was born, I took out a 20 year level term life insurance policy to help cover the raising of my two sons if something should happen to me leaving my wife with the responsibility.

Had an opportunity to early retire a year later with a COLA'd pension. Survivor benefit was 55% but was not overly concerned as wife would have our investments plus life insurance to live off of.

Fast forward to today. Boys are now 16 and 18. I'm still active, and the policy is up for it's annual renewal. Investments have done well enough such that our net worth is 2.5 times what it was when I retired. We live off my pension, some "keep busy" seasonal employment, and maybe 1% withdrawal rate from investments. No debts.

I've justified the past few renewals as being an insurance bargain. Since it's level premium, paid more in the early years for coverage in return for reasonable rates in the later years (Can't turn down a bargain) Cost is $750 per year for $300K. Now 65 years old but faced with college bill for next five years that will likely push our investment withdrawals near 5% range. Current health is good, no known issues, but one never knows.

The $750 is not a significant budget item but on the other hand, since the boys are pretty much grown, I think my wife would be fine on the survivor benefit plus a few years at about 7% withdrawal rate. She's ten years younger so about time boys out of college, she'd be eligible for SS on her own record (way better than my WEP impacted checks).

Any thought on if I should/should not continue the policy for remaining years??
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Old 09-04-2015, 11:56 AM   #2
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Do you have to take a physical?
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Old 09-04-2015, 11:59 AM   #3
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Do you have to take a physical?
Nope, guaranteed renewable.
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Old 09-04-2015, 12:07 PM   #4
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It sounds like you don't need to.

OTOH, if your probability of dying in the next year is more than 0.25% (the $750 cost of the life insurance for a year in relation to the $300,000 tax-free death benefit) then it might be a fair bet.

I suspect that the risk of a 65 year-old healthy male dying in 12 months is more than 0.25%, but then again $750 can buy you and DW quite a number of a nice dinners together (or whatever else you like to do).

Quite the first world decision you have there.
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Old 09-04-2015, 12:34 PM   #5
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Keep it til the boys are out of college.
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Old 09-04-2015, 01:56 PM   #6
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Keep it til the boys are out of college.
agreed
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Old 09-04-2015, 02:22 PM   #7
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agreed
+1
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Old 09-04-2015, 04:03 PM   #8
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If I were in your position, I'd probably hang onto it. As you mentioned, you paid more in the early years and are now probably getting a pretty good deal. I'd re-evaluate when Son #2 enters college and is established there--if his expenses are lower than anticipated and if investments are still doing well and your other costs aren't higher, possibly I'd drop it.
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Old 09-04-2015, 04:53 PM   #9
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I have a middle schooler and high schooler. We dropped our insurance before I retired. My husband was the lower earner and we dropped his even earlier. Our thinking was - the mortgage was paid for, we had income enough for a family of 4 from investments, rental income, etc... the mortgage would just be icing on the cake. We felt we needed it while we were dependent on my salary - but once the salary went away (and our dependency on it) we no longer needed the insurance.

My kids college is covered with 529's... so that is not an issue.

Just my scenario as an alternative to what others have suggested.
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Old 09-04-2015, 05:10 PM   #10
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I've justified the past few renewals as being an insurance bargain. Since it's level premium, paid more in the early years for coverage in return for reasonable rates in the later years (Can't turn down a bargain) Cost is $750 per year for $300K
According to the 2008 Valuation Basic Table (the best bet for insured lives when it was new), the mortality rate for a male, nonsmoker, who bought his policy at age 49 and is now 65 would be 6.62 deaths per thousand.

On a pure gambling basis, your expectation is 6.62 x 300 = $1,986

OTOH, some of the people who bought policies 16 years ago have had health problems and would be uninsurable today. The mortality rate for newly underwritten lives (who are healthy enough for standard rates) is 2.25 deaths per thousand.

That would change your value to 2.25 x 300 = $675.

You'll have to guess where you fit on that health spectrum.

https://www.soa.org/research/experie...rt-tables.aspx
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Old 09-04-2015, 05:35 PM   #11
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Keep it. Only four more years to go and guranteed level premimum - can't beat that!
I've two 30yrs term life policies 1M/each and I am planning to keep it until it expires. I pay 3K/yr for both policies. I'm 50 now and still has 15 yrs to go. We're almost FI now.
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Old 09-04-2015, 10:15 PM   #12
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Keep it for the next four years! It's only $3,000 over four years for a potential $300,000 payout. It would be a great tax free windfall for your widow should unexpected expenses occur. If she doesn't need it, certainly it would give a strong foundation for your two young sons.

If you needed the $750/yr to eat or pay your children's tuition, that would be a different story, but it does not sound like your situation. Darn, it's less than $15.00 a week! If you outlive it, celebrate!


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Old 09-04-2015, 11:32 PM   #13
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Keep it, its cheap insurance.
Once the kids are done college, or the price dramatically jumps then quit it.

Until then enjoy life !
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Old 09-05-2015, 02:23 AM   #14
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Good job getting term instead of being suckered by an insurance salesman trying to sell you universal life, whole life, variable or other expensive crap.
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Old 09-05-2015, 12:59 PM   #15
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Another vote for keeping it. Remember that you might get hit by another car when driving, walking or biking. That is the most risky thing you are doing right now.
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Old 09-07-2015, 05:58 AM   #16
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Thank you all for the replies. Seems the majority feel that it is cheap insurance against future unknowns and to keep it, even though applying a strict "need" for the insurance is probably not valid anymore. Interesting......generally my feelings also. And I get to revisit this issue every September! No way will the policy continue past it's 20 year life, premiums take a HUGE jump. The policy served it's purpose in the early years of retirement with young boys. Compared to the college costs coming up in next 5 years, this expense is small change! I do have 529 plans in place but they may not cover the full college expenses for both (and EE and I bonds that can be cashed tax free if used for education expenses, bought before 2004) but that is another thread.
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Old 09-07-2015, 09:07 AM   #17
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My personal plan is to continue mine until I hit the end of level term, renewal policy. You can view the early years of these policies as a "front load" since you pay higher than the single year rate and the last years are a relative bargain where you pay less than you could buy a single year for. After that, I will not renew. My boys will be almost through with college and if we didn't have enough to live on I wouldn't be retired in the first place.
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