Drop Adjustable Life Insurance Policy?

[kjpliny]

I just received the annual premium for my wife's whole life insurance policy that she took out 15 years ago and am thinking of dropping the insurance for a couple of reasons, the main one being that we really don't need it...or at least I don't think we do.

The annual premium, which started at about $145/yr is now $206/yr, the original death benefit was for $50k but has adjusted over the years to $67.5k. The current surrender cash value is about $1800.00. THe insurance is set to end at age 90. Premiums are adjusted each year by 2.4% (based on CPI over past 5 years), current interest rate is 5.6%paid on existing cash value, and increase in coverage increases at the same 2.4% rate until age 44 (7 more years) at which point it stops increasing as far as I can tell.

Based on this information and a look at the fees/expenses listed for the past year (total of $37.35 on $206 annual premium) and cost of insurance of $50.47 (total cost of about $88...the rest increases the cash value plus interest/dividends), should we just drop this policy? I am the beneficiary if my wife dies, but she currently is insured through her work...which is about $300k additional insurance that won't end until she retires in about 17 years.

What would you guys recommend...take the cash and drop the policy or continue paying it? Put the $200/yr into term life instead?

 

[runchman]

Do you have any kids you need to provide for? If it is just you and your wife, and you are working and could continue w/o any bumps in the road should your wife die, then you don't need insurance on her at all.

I'd dump it and stick with term, presuming you even need it in the first place.

- John

 

[spideyrdpd]

If you decide that dropping it and getting term is the right thing to do. Get the term life in place first.

 

[samclem]

I'm with runchman: Question #1 is do youneed any insurance at all on your wife's life? In addition to the queestion of children, is her income needed to pay your mortgage, etc? Bottom line: If her death would leave you with insufficient financila resources, then you need insurance. If you'd be okay financially if she should die, then you don't need any insurance at all.

And, if you DO need insurance, is the insurance provided by her employer enough (both the amount and the duration of the coverage).

Finally, if you DO need to buy a separate policy, term will be the cheapest way to do it. Get the $$ amount and duration you need, but don't buy extra. Protection costs.

 

[kjpliny]

Thanks for the replies...her salary is needed to meet ongoing payments. We don't have kids. When she retires, we'll have her pension with survivor option, so it's just a matter of getting through the next 17 years or so. The insurance through her work is about 3 times the current mortgage, which will be paid off in 10 years. I suppose we could do term life for 15-20 years, but how do you know how much you need?

 

[runchman]

I suppose we could do term life for 15-20 years, but how do you know how much you need?

That's really a tough one, isn't it. Just try to imagine you are suddenly without the wife and her income, and visualize what the economic situation would be for you. From that maybe a lump sum that makes sense will become evident.

For me, I have 2 young kids, my wife doesn't work. I have 200k term on her - my feeling is that if something happened, that would give me enough margin to payoff the house and a chunk left over to live on for a while, so if needed I could quit and hang out with my kids for some time while I figured out what the heck to do.

If I were without kids, my approach would probably be to figure that if my wife were to die I'd either 1) sit around the house and become an alcoholic, or 2) throw myself into my work. Being as how option 2 is probably a bit better, I wouldn't bother with the insurance on the wife.

In any case it isn't an easy choice. But if she gets 300k from work, maybe that is enough and you can think about where to park the $1800 from the existing policy

- John