Term Life Insurance: When to stop paying it?

[HsiaoChu]

OK..... I've been paying Forrest T Jones & Co for term life insurance since the kids were tiny babies for me. it was around $250,000 last time I checked. It was a great rate I got from my membership in PhiDeltaKappa, apparently Kappans are pretty healthy people and don't die until quite a while. But gradually its gone up of course until now at age 61, I'm paying nearly $900 a year for it at age 61(lots more than when I was 30.

My kids are 27 AND 30. If I died my wife would get my pension, and survivor SS. Should I just keep it for sure until I retire, or lower the amount, or what?

What have those of you done?

Z

 

[kumquat]

What would happen to your family if you dies today and you:
-- had the insurance in place?
-- had cancelled it?

If your DW or dependants would have to struggle and the $250K would alleviate that, you might want to keep it. If it meant your net worth would go up 5%, you might not.

Your money, your decision.

 

[samclem]

I agree with Kumquat--just figure out of it is still needed. Figure the family budget if you died today (would your pension come to your spouse? How much of it? When would she qualify for Social Security, and how much would it be? "Regular" monthly expenses and then any other costs for kids' education, etc). If her income plus a sensible withdrawal rate from your savings would meet the expenses without the insurance check, then it may make sense to cancel the policy.

 

[ejman]

To me, the purpose of term life insurance is to help my family survivors financially once I'm gone. Once I reached Financial Independence and no longer needed to work to cover my family expenditures it seemed to me there was no reason to carry life insurance so I dropped it. I realize there may be other reasons to carry insurance (Tax planning etc)

 

[rescueme]

I had various term policies (private & wo*k) over the years.

When I retired three years ago, I cancelled all of them execpt for one small $50k policy for the benefit of my DW.

While she will be able to play the "happy widow" after I pass (assumining I go first), she will need some time to make decisions related to our combined portfolio.

Just to give her "breathing room", and keep her from making a fast decision, I kept the policy.

Anyway - that's what I did...

 

[Bestwifeever]

Personally, I would keep it until you retire and know what your expenses and income will be.

You could shop around and see if that is a good rate for your age.

 

[akck]

From my standpoint, the biggest expense we have is our mortgage. I want to make sure that my wife will be capable of paying it off should I die (I'm not saying she should though). Likewise, my wife is carrying enough insurance to pay off the kids' student loans. Once those are paid off, I see no reason to keep the term policies.

I just realized the the mortgage isn't planned to be paid off until 3-4 years into retirement (for school related tax reasons), so I'll have to carry my policy a little longer than planned.

 

[Independent]

I dropped my life insurance some years before I retired. I had a pension, SS, a paid-for house, and a 401k.

The 401k was intended to pay some expenses for two of us. If I died, it would be more than enough for one person. (My wife would have gotten half my pension and 2/3 of our combined SS benefits.)

 

[WhoDaresWins]

I carry $300,000 term life insurance on myself in a level term policy for which I pay $903.00 per year. This policy is held as an asset by my trust to pay some of the estate taxes upon my demise. I don't know why I am concerned about this as my son is quite well off, but I don't want him to be hit with a big tax bill. I guess I was more concerned about this a few years ago while he was still in college and his future was still more of a concern to me, especially after his father died. I have another $200,000 via my employer but this will be slashed to a $5,000.00 benefit when I am a retiree.

 

[LOL!]

We looked to see what would happen if either one of us or both of us died. After the party held by the survivors, we saw that nothing would change financially, so we never bought life insurance in the first place.

 

[Animorph]

Mine runs out this year. My stock options have been exercised and sold, and my family is in good shape now if I die next year. No need for it.

 

[brett]

I just cancelled mine last month. It started to go up after 50, up again at 55. We have enought to retire and the $175 mo. will pay almost pay for a week on the beach in Cuba during the winter.

 

[Alan]

As others have said, you have to play the "what if I died" scenarios and see if your wife has enough money to live on.

In our case a large part of my income is from my company pension. If I die DW will continue to receive 50% of it so we have a life insurance policy on me that will fill that gap should I die before her.

 

[chinaco]

Often term policies have a limited duration... 10, 20, 30 years. Some are guaranteed renewable without underwriting.

It is a complex decision and it depends on your situation and possibly the other assets you own. You might want to discuss it with an estate planner. Someone recommended that Ed Slott book on IRA and estate taxes in another post. You should take a look at it.

You should consider the benefit of keeping it before you make a decision. Especially if you have some sort of lock-in on premium costs. The reason is to mitigate the risk of some sort of unexpected expense (e.g. health) that may deplete your assets before you die and leave you spouse in the poor house. Plus, if your spouse dies before you, you can have your children as secondary beneficiaries on the policy. Assuming you have an estate worth more than $1mm when the final survivor passes... it can help pay taxes. This could be especially important if the assets are in tax deferred accounts and they have to be cashed out because of estate taxes.

You might not be able to buy it today if you went through underwriting and had to have a physical exam by a doctor. You may find that the same coverage would cost you double or triple if you purchased it today. It might be a good value. You could get a comparative quote to see what a similar policy would cost you today.... Here are a couple of instant quote sites http://www.term4sale.com/ https://www.nylaarp.com/enroll/product_enroll1.asp

Assume that you might die by 80 years old... that $900 a year invested for 20 years (compounded) will probably not yield $250k (even after factoring in inflation). Take that same scenario to 85 yo.

Another consideration: Say you would like to leave something to your children. Compare leaving that $900/yr invested and compounded over 20 years to the face amount on that policy. Look at the $900 as an investment to help your kids down the road when you pass on.

 

[Midpack]

I always considered life insurance an estate for DW when we were younger and had little net worth. Now that we're FI, we have an estate so life insurance makes no sense. I have a $155K policy from work that they pay for, but no life insurance of our own anymore. What for?

If you're FI, I don't see the purpose of life insurance...

 

[kcowan]

I am cancelling three policies, one term and two whole life. No longer needed.

I have one that replaces my non-survivor company pension which I will keep.

 

[growing_older]

I did the calculations to figure out if I died (allowing a generous amount for medical bills on my way out plus final expenses) and whether what was left would be enough to launch kids through college into their own careers and support DW if she lived a long, long time. Based on that I carried substantial term policies until my net worth got close to FI. After a divorce and no longer needing to support ex-DW, my calculation revealed that kiddos could spend 10 years at any expensive school they wanted and still have money left over. I dropped the insurance.

I'm told if my estate gets big enough, there are situations where having some insurance will help with taxes and improve inheritances. When I reach that point where there's money I'm not going to use in my lifetime and using some of it now to cushion taxes for future heirs with insurance will pay off then I'll look for a policy again. It would take a spectacular investment performance to get me there, so I'm not expecting it. By then. kids may be FI on their own.

 

[ziggy29]

Another thing to remember is that when one spouse dies, the other may lose one SS check and pay a lot more taxes due to single filing status instead of MFJ. That needs to be accounted for when figuring out whether there will be an after-tax income shortfall after one spouse passes.

 

[dgoldenz]

For those with life insurance through a group, you are better off buying your own policy if you are reasonably healthy. Group rates go up every 5 years and very sharply rise after age 55 and 60 age bands.

 

[harley]

You should consider the benefit of keeping it before you make a decision. Especially if you have some sort of lock-in on premium costs. ...
You might not be able to buy it today if you went through underwriting and had to have a physical exam by a doctor. You may find that the same coverage would cost you double or triple if you purchased it today. It might be a good value. You could get a comparative quote to see what a similar policy would cost you today.... Here are a couple of instant quote sites Term4Sale.com - Term life insurance comparisons (over 100 companies) https://www.nylaarp.com/enroll/product_enroll1.asp

I agree 100%. I have a term life policy for $500K that I bought 10 years ago (when I was still employed) on a 30 year lock in on the premiums. I bought it outside of my job, because I wanted to have the option of continuing past retirement, and wanted it for more than was available through the job. Plus it was cheaper. It's not that expensive, about $1200/yr. I've checked recently and a similar policy would now cost me nearly 3 times as much (older, fat, diabetic). I don't really need the policy since we're FIREd and I don't need to replace income, but it would be very useful in mitigating estate taxes for DD. Even if I go first and the money passes to DW, my insurance policy can go to DD to be used in the future when DW joins me in the great unknown. Of course, there's no way of knowing what the tax situation will be like in 20 years, but it's nice to have a hedge available. I'll be 74 when it runs out, which is right at my current life expectancy. My hope is that I'll outlive it. If I do, I'll re-address my options at that point. For now I'm happy to have it in my hip pocket in case things work out counter to my hopes.

 

[bizlady]

Interesting discussion. I always assumed we would drop ours at retirement, as the assets will cover the exepenses for the other if either dies...BUT had not considered a disabling illness or accident that could eat up assets in the event of nursing home costs early on. Will now gove more thought to this.

 

[dgoldenz]

Interesting discussion. I always assumed we would drop ours at retirement, as the assets will cover the exepenses for the other if either dies...BUT had not considered a disabling illness or accident that could eat up assets in the event of nursing home costs early on. Will now gove more thought to this.

Many people also did not factor in the possibly of being unemployed for an extended period of time. One person I know has been out of work for over 18 months and has eaten up much of their savings to continue paying the bills and college expenses for the kids. If you spend down what you thought you were going to save for retirement, is it easier to replace that money with life insurance, or go back to work at age 65 ,70, 75, etc?

 

[chemist]

I just cancelled my $1MM term policy. Once I turned in my pension paper work to Fidelity, my wife gets 100% of my pension even if I die before I retire in August at age 55.

Since I view the primary role of life insurance is to replace income in case of early death (and disability to do the same in case of disability), I no longer need it.

For those worried about dire illnesses, I would suggest insure against those rather than buy or maintain life insurance you don't need. Remember there are many dire illnesses that can deplete your assets without killing you. (e.g. Alzheimer's).

 

[kcowan]

For those with life insurance through a group, you are better off buying your own policy if you are reasonably healthy. Group rates go up every 5 years and very sharply rise after age 55 and 60 age bands.

Yes I found the same thing. That must be why they are so cheap earller, because they seldom pay out.

 

[sdfire]

How about disability?

I carried a $2 million policy for many years. When it came time for renewal and they wanted to triple premiums, I let it lapse. We were very close to financial independence and, therefore, there was no need to replace my income should I die.

For some strange reason that I can't quite put my finger on, I haven't done the same thing for my disability insurance. It seems like the same logic would apply, wouldn't it? I've told myself that the reason I'm keeping the disability policy is because I am much more likely to become disabled than to die. But, the policy is very expensive, although it has a huge payout if I do become disabled. I'm paid through August and wondering if I should let it go when August arrives. I obtained the policy through my former employer who I left a little over a year ago. Therefore, I can't replace that policy, and I was encouraged by my former employer to keep the policy for that reason.

What I may do is see what a lesser policy would cost. But, I'm not sure why I'm reluctant to part with this insurance given that I feel totally fine about going without life insurance. We have enough now for a 3% withdrawal rate with our current budget.