Should I cancel my term life policy?

[dvalley]

I got the policy when I was 33 and I believe I got a pretty good rate due to being in good health at the time. I pay $50 per month for the $750k policy. My dependent is my 12yo DD. The beneficiary on the policy is my ex.

I'm now 41 and my networth has reached approx that number if I include the home equity and am wondering why I need the policy and instead I can put the $50 per month towards the college fund for DD. Thoughts or advice from the wise?

 

[jazz4cash]

If I had a 12 yr old daughter I would keep the policy unless I had sufficient assets to meet her basic needs (not college).


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[dvalley]

Good point, in my mind $700k in assets that I have now should be more than sufficient even including college. Additionally she will have her mom and her side of the assets, income etc. I was thinking the same $50 invested over 10 yrs is $7k for her to use towards college/marriage/car/vacation etc.

 

[Just_Steve]

The first thing I would do is remove the EX as beneficiary and make my child the beneficiary.

 

[ivinsfan]

When my DS divorced and had a 9 year old, she made me the beneficary in lieu of her ex who didn't have a very good track record with money.

 

[CaliKid]

I would keep the policy. You can never have too much cash if you die unexpectedly. It's cheap. Eat out one time less a month and invest that money.

Also, I would set up a trust and name the trust the beneficiary. If you are too cheap for that then set up a will with a "testamentary trust" and name that trust as the bene. Not nearly as good as a living trust but better than nothing.

You want the money to go for your daughter, and not spent frivolously, so it needs to be in trust.

 

[pb4uski]

The first thing I would do is remove the EX as beneficiary and make my child the beneficiary.

+1 remove the ex. My best friend was married to a golddigger who cheated on him and he divorced her. She remarried another guy. That guy died a short will after they were married, but he forgot to change his beneficiary so his ex got the life insurance proceeds and the golddigger got nothing. Sweet justice!

 

[UpAnchor]

+1 remove the ex. My best friend was married to a golddigger who cheated on him and he divorced her. She remarried another guy. That guy died a short will after they were married, but he forgot to change his beneficiary so his ex got the life insurance proceeds and the golddigger got nothing. Sweet justice!

I would hope that this last ex was not also a golddigger...

 

[DrRoy]

I went the self insurance route when I hit that point. It will just add to your NW faster.

 

[Independent]

Your daughter doesn't need your $700k net worth, much less your $700k net worth plus a $750k life insurance policy.

How generous do you want to be, over and above her needs? Is there some reason you'd want to be a great deal more generous if you're dead than if you're alive?

You didn't mention other financial obligations, so I'm assuming you don't have any that would suggest life insurance.

I'd drop the policy.

The only reason I can think of for keeping the policy would be if it has a long level-premium period (like 30 years) and you think you may remarry and want insurance then. In that case, it may be safer to keep this policy than to drop it and expect to be healthy when you want to buy a new one.

 

[big-papa]

+1 drop the ex as the beneficiary and add DD instead
Maybe set up a trust for the DD

I'm in a similar situation (except no ex), and my plan is to keep it in force until her college is done.

One thing I'm considering is that my policy tends to have an increase in premium for every 5 years in age. Perhaps drop the value of the policy accordingly to keep the rates the same. Simultaneously (hopefully), my NW is increasing to offset. Sort of a reverse glide path.

 

[redduck]

Your daughter doesn't need your $700k net worth, much less your $700k net worth plus a $750k life insurance policy.

From the information that the OP has shared, how did you determine that his 12 year old daughter doesn't need and won't need in the future $700K plus $750K life insurance?

 

[Gill]

The first thing I would do is remove the EX as beneficiary and make my child the beneficiary.

You don't want to make a 12 year old the beneficiary of the policy. With that amount of money you should consider a trust under your will or a life insurance trust created during your lifetime. Making the policy payable to her will require the appointment of a legal guardian managing it for her until she reaches majority.
Bruce

 

[Big_Hitter]

no, keep it

 

[Independent]

From the information that the OP has shared, how did you determine that his 12 year old daughter doesn't need and won't need in the future $700K plus $750K life insurance?

You're correct, he didn't say enough for me to be sure about that.

It's possible, for example, that she has a serious mental problem which will prevent her from ever being self-supporting, and he just didn't mention that.
However, he did mention a "college fund", so he must be planning on her attending college.

Or, it's possible that by his definition of "needs", $700k isn't adequate for a healthy person. Maybe he was planning to provide an annual gift of $25k per year for the rest of his life, and he thinks of that as meeting a "need" rather than as paying for "luxuries". In that case the life insurance does fund that need.

 

[CaliKid]

You don't want to make a 12 year old the beneficiary of the policy. With that amount of money you should consider a trust under your will or a life insurance trust created during your lifetime. Making the policy payable to her will require the appointment of a legal guardian managing it for her until she reaches majority.
Bruce

All correct except do NOT get a "life insurance trust." A life insurance trust or ILIT is typically an irrevocable trust done for tax planning purposes and occasionally for other asset protection purposes. However, the vast majority of people should just pay the life insurance proceeds to their regular living trust. In my opinion a stand alone ILIT would be an unnecessary expense based on the facts given.

 

[nat8199]

Personally, I would keep it. College and graduate school expenses will only grow, and if something were to happen to you in the next 10 years the stress reduction would a silver lining to a horrible loss in her life.

I would NOT keep you Ex as beneficiary, though. I would set up a trust with limitations on what the money could be spent on, like education, medical, and housing needs.

 

[dvalley]

OP here, thanks for the responses. Those in favor of keeping it, can you elaborate where you see DD needing more than $700k+ between now and until she's able to support herself (after college)? She's healthy and a good student too.

If I were to drop dead today, the $700k personal NW should be able to provide for her college etc just fine. Over a period of 10yrs that's far more than what I'd pay for child support. Not to mention her mother makes good money and has her side of the funds available to her too.

As for the beneficiary, I was thinking about changing it to DD hence the rethinking of 'do I even need to keep it'? However, I just don't have the time lately to research and figure out the whole trust thing. I will at some point when the assets grow more.

Someone made a point about me re-marrying and that's a very valid and great point- I didn't think about that and because of it I think I will keep it. I do want to remarry- I've tried being the lone-wolf but I'm just not cut out for it, I need a partner in crime lol.

 

[redduck]

...I got the policy when I was 33 and I believe I got a pretty good rate due to being in good health at the time. I pay $50 per month for the $750k policy. My dependent is my 12yo DD....

I'm now 41 and my networth has reached approx that number if I include the home equity and am wondering why I need the policy and instead I can put the $50 per month towards the college fund for DD. Thoughts or advice from the wise?

Even though I'm not a part of the group you wish to hear from, I have some thoughts about your situation.

... in my mind $700k in assets that I have now should be more than sufficient even including college. Additionally she will have her mom and her side of the assets, income etc. I was thinking the same $50 invested over 10 yrs is $7k for her to use towards college/marriage/car/vacation etc.

$7K is probably not going to make much of a difference in a person's life. Certainly not much help towards college. Your spending $50 a month on insurance hopefully doesn't make a financial difference in your life.

And, what makes you think she will be able to support herself after college--or, that she will stay healthy? (Hopefully she is able to support herself and stay healthy). But, the extra $750K or so might be the difference in her living in a not-so-nice two bedroom apartment with a husband and two kids or living in a four-bedroom home in a nice neighborhood (with a husband and two kids).
[/QUOTE]

... keep it

I think Big_Hitter nailed it.

 

[dvalley]

Thanks redduck, I appreciate the clarification. I didn't consider providing for her beyond the point when she's an adult. Of course I would help my only child if she needed help regardless of her age as any other parent would but if I didn't die I don't think I'd be able to provide a whole lot of financial support without putting my FIRE at risk. If I did die, well then she'd still have a sizable inheritance which is my FIRE pool of money. However, it does make sense for me to keep it because it's cheap insurance- literally

 

[ivinsfan]

I don't think you should keep it just for your DD's benefit, remember if you pass she will get SS dependent payments until she is 18 or out of high school, which should keep most of your original nest egg intact for college and such.

However keeping it in case you have a second family is a very valid reason. A bird in the hand and all that....if you've had a change in your health status, you won't be able to replace if at a later date, at least not for the same rate...if you are still in good health you might price a policy with a lower face value...

 

[redduck]

Thanks redduck, I appreciate the clarification. I didn't consider providing for her beyond the point when she's an adult. Of course I would help my only child if she needed help regardless of her age as any other parent would but if I didn't die I don't think I'd be able to provide a whole lot of financial support without putting my FIRE at risk. If I did die, well then she'd still have a sizable inheritance which is my FIRE pool of money. However, it does make sense for me to keep it because it's cheap insurance- literally

That's a good dad!

 

[redduck]

A little bit more on this life insurance thing:

It's kind of a philosophy/opinion about taking care of a family member. Other people obviously have different ideas and thoughts on the subject.

The reason I feel so strongly about my philosophy: my father died when I was young: no life insurance. When the time came, I simply couldn't afford to go to the college of my choice (out-of-state school). I stayed in-state for my undergraduate degree. That worked out okay. I mean, come on, that's where met my wife, eventually many years later to be my ex-wife.

The lack of life insurance situation arose when it came time to go to graduate school. In this case, I wanted to stay in town to go to school. It would have been especially good for internships, making contacts, becoming known. But, the in-town school was way, way, way too expensive even with a partial scholarship, small grants and huge loans. Because there was no $750K life insurance money, I had to leave the state for my graduate work (where I got a full scholarship). But, the price to be paid was that I was not able to get the internships and make the contacts that others in my field made as they stayed in town. The other thing I learned was that alumni take care of their own--that's just how it was back then (maybe still is). Coming back home after graduate school, I found I was years behind my colleagues with regard to becoming established in my chosen field. So, not having had the advantage of a good-sized life insurance policy had ramifications years and years later.

Of course, YDMMV (Your Daughter's Mileage May Vary)

 

[Sarah in SC]

I'd definitely keep the policy. And create a simple trust that would accept the funds and dictate the terms for disbursement.
If your situation changes, you can leave the policy as-is and name other assets in your will for your potential new spouse.
All of our beneficiaries (niece and nephews) are minors, and we have verbiage in our wills to create two trusts that would provide for them at the discretion of the trustee, my BIL.
What you don't want is for her to get a ton of cash at 18 or 21.

 

[Al in Ohio]

The first thing I would do is remove the EX as beneficiary and make my child the beneficiary.

Oh absolutely. Like yesterday.


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