Life Insurance Question

[harley]

We have a 30 year term life policy on me that I bought 23 years ago, back when we would have needed to replace my income. I've played with dropping it, as it's really no longer needed (been FIREd for nearly 17 years now). But it's pretty cheap, the rate never changes, and it's a comfort to DW. So we left it in place. However, my health has taken some really serious turns for the worse over the past couple of years. I always expected to die young (I had a lot of too much fun in my life, plus bad genetics), but last year I was thinking this could be it. I've made some progress, and am doing a bit better, but I'm figuring that I could easily die before the policy runs out. The little bit of extra money won't ease DW's pain, but it would be nice to have. That's one reason I'm holding on to it. The other reason is that I never win bets, so keeping the policy pretty much guarantees I'll live another 7+ years. So it's really cheap at that price.

From a financial POV, I'd say drop the insurance. But from a domestic tranquility POV, go with whatever makes DW comfortable. Spend some time trying to convince her, but if she's solidly against it, pick some other battle.

 

[Act2]

If it would be life-changing to the beneficiary if you did not have it and died unexpectedly, keep it. If you’re unsure, keep it one more year - easier to cancel in a year than to get new coverage in a year.

I canceled most of mine a year ago. No kids, single, and recently paid off the mortgage. Took me a couple years of mulling it over to cancel because “I’d always had it”.

 

[Act2]

But I also agree that domestic tranquility is important and perhaps decisive.

 

[Sunset]

It's pretty hard to determine, since OP didn't state the cost.

We don't need life insurance. DW has a whole life policy bought when she was a kid.
She pays $170 per year for it. It earns about $250 in dividends per year.
So it's basically better than free, so she keeps it.

If DW was paying thousands of dollars, then I think the answer would be different.

 

[big-papa]

We are a couple 58/60 without children, and have had life insurance most of our married life. In Fall 2022, new financial planner says we do not need it (and it is quite spendy.) It has always been nice knowing it would be there for the other person, but as a new retiree, it is an unnecessary expense. The premiums are coming due. Follow head or heart?

We purchased group life insurance through a professional organization years ago. Both for myself and my wife. I was in prime earning years, so it made sense for me to be able to replace future income. I added my wife after we had our kid because we'd need to pay for childcare if she was gone. I've also had the max 'free' life insurance with every employer I've had.

My insurance had automatic step-ups in premiums built in every 5 years. Every time that happened, I reduced my coverage accordingly to keep the same premium. It made sense to me during the working years that as your net worth increases, the payout for life insurance would decrease accordingly. Once you hit 60, the step up in premiums is every year.

I retire next month. Payment is due now. I'm letting it lapse completely. Daughter graduates college this semester, which is paid for. And our savings is more than enough for either of us to live out our lives comfortably. Mission accomplished and counting our blessings that neither of us actually had to use the insurance.

Cheers,
Big-Papa

 

[latexman]

When my plan in FIRE Calc started getting about 75% of success, I started backing down on my term life insurance bought through MegaCorp. IIRC, about yearly I went from 6X salary to 5X, then 4X, then 3X, and so on, until now I have no term life insurance. Of course, my current plan in FIRE Calc is 100%.

 

[stevenr]

Well we decided to renew our policies for another year and re-assess in 2024. Sometimes change is hard! Thanks everyone for your insights.

 

[Koolau]

Well we decided to renew our policies for another year and re-assess in 2024. Sometimes change is hard! Thanks everyone for your insights.

We're here to help. Just remember that we're non-experts on the internet, so our advice is worth what you pay for it (and YMMV.) Good luck!

 

[GaryInCO]

I got a variable universal life policy when I was about 23, for a then-unimaginably huge sum. Since it's a VUL the payment has stayed the same for 40+ years. I always figured it was a good deal, since I got the insurance coverage AND my surrender value kept increasing faster than the payments. Well now I'm not as good a risk, the insurance costs are going up, and the policy is designed to extinguish (eat all the surrender value) at age 77, which is 11 years. The surrender value is still growing very slowly, but it'll soon start to lose ground.

I've always counted the insurance payout as a nontrivial part (almost 20%) of my net worth, more $$ for my sons. Especially since I got cancer several years ago, I figured the chances of outliving the insurance were fairly low, so it made sense to keep the policy even when the surrender value starts to decline.

Is that dumb? Should I hold the policy for eventual benefit to my sons, or cancel the policy and pull the surrender value (about 10% of the face value) at its peak?

 

[bigriver]

I had life insurance when I was married in my 20’s and dropped it after the divorce. Got it again in my 30s in case I got married and couldn’t get it due to any serious health issues. Insurance agent was good. When I hit 50, house was paid for and I hadn’t married and kid was grown. Didn’t see a point since I had enough to retire. What’s the point of life insurance for someone single retired and house paid off. Waste of money

 

[indiajust]

Only insurance has been through work, haven't seen that since 08. No dependents to insure.

 

[athena53]

When I had just bought a home in a new city my name must have hit some list for 'sucker'... I was getting cold calls pitching life insurance all over the place.

I bought my first house with a guy I'd been dating. I was 26 and he was 46 but I made more money. The house was in both our names but HE got all the life insurance pitches in the mail. This was 1979 and I was pretty annoyed. Very sexist assumptions.

Years later, DS' caregiver lost her husband to brain cancer a few months after the diagnosis. He was only 50. They'd gotten decreasing term life to cover the mortgage just the year before. It was a real blessing.

 

[simple girl]

The person who needs to be consulted is the spouse.

Is the spouse comfortable with dropping it?

If not, is there a tipping point which would make it easier, i.e. Medicare age, full retirement age? Look to "negotiate" something with an anxious spouse - if applicable.

Full disclosure, I was the anxious spouse. DH took a reduction in his pension to give me a 100% joint and survivor option and continued health insurance for my peace of mind, so that when his life insurance premiums skyrocketed, I was comfortable discontinuing it.

Agree with this completely. We have term life on both of us (~ 2 yrs left on the term policy) that actually is pretty darned cheap, so it's a fairly easy decision anyways to keep it...but...the biggest reason is because of DH's pension. He is unable to elect 100% survivor option until he starts taking his pension. If he happens to pass prior to being eligible to start his pension, I will receive the 50% benefit amount.

So, we consider the life insurance policy my protection plan for the next few years, until we can start his pension and elect 100% survivor option.

We don't actually need the term life on me, but it's a smaller amount, and cheap, so we'll probably keep it for the remaining 2 years.

 

[DrRoy]

If you have enough to live on then ditch the insurance. We did.

 

[FLJim]

Life insurance is sold based on emotion. If it was sold on pure mathematics, there would be far fewer policies in force.

 

[CRLLS]

My original philosophy for figuring out my life insurance amount was to never be worth more dead than alive. IOW, keep the face amount at the minimum necessary for the task. In my case, it was about 1 years' worth of my salary. That would have been enough time for DW to get over her grief and then gotten a good paying job. Fortunately, it never was tested.

 

[HaveEnough]

Life insurance is sold based on emotion. If it was sold on pure mathematics, there would be far fewer policies in force.

This!

I've found that many people do not understand FI. They are so used to needing a paycheck they have tunnel vision for anything else.

We have a friend that sells insurance. I had been retired for 4 years or so, I retired at 53. She was talking about insurance. not selling, just discussing. When I said we do not have any life insurance. She was visibly taken back. She said what will DW do if you die. I said, I'm retired, no pension and we live off of our savings. No concept of this. Next question was, what will you do for final expenses? My reply was ... what 10 grand?

Most people do not understand money let alone FI.

 

[Koolau]

I got a variable universal life policy when I was about 23, for a then-unimaginably huge sum. Since it's a VUL the payment has stayed the same for 40+ years. I always figured it was a good deal, since I got the insurance coverage AND my surrender value kept increasing faster than the payments. Well now I'm not as good a risk, the insurance costs are going up, and the policy is designed to extinguish (eat all the surrender value) at age 77, which is 11 years. The surrender value is still growing very slowly, but it'll soon start to lose ground.

I've always counted the insurance payout as a nontrivial part (almost 20%) of my net worth, more $$ for my sons. Especially since I got cancer several years ago, I figured the chances of outliving the insurance were fairly low, so it made sense to keep the policy even when the surrender value starts to decline.

Is that dumb? Should I hold the policy for eventual benefit to my sons, or cancel the policy and pull the surrender value (about 10% of the face value) at its peak?

I suppose the first question is to decide if you need the money (well, your survivors, anyway.) If so, you might need to sharpen the pencil to see if it still makes sense.

My Variable was taken out when I was a good risk. I doubt anyone would insure me now. SO, I look at my policy as a good "bet", so to speak. DW is more likely to collect now that I have several "issues" that I didn't when I took it out. My policy doesn't run out of money until about 82 IIRC. I can keep it in force by sending extra premiums (now and/or in the future.)

DW had the same kind of policy and she invested the cash value in the insurance company's aggressive fund. Her cash grew to more than the value of the policy at one point. SO, she cashed in the policy (well, 1031 converted it) to a MYGA and took all the "free" cash to pay for some elective surgery (heh, heh, anticipating that she might get MY insurance pay out, I guess.)

I think there is a huge difference in required thinking if you already have a policy vs taking out a policy. Lots of folks here hate insurance - especially anything that is non-term based. BUT, if you've been paying on a policy for many years, you probably should think long and hard about what to do with it. There are many options to most policies and you need to really dig into them. After all, you've long since paid off the sales person. Likely your less insurable, theoretically making your policy more likely to pay off. I don't have a suggestion (other than "it's complicated" so research, research, research.) YMMV

 

[RobbieB]

Yeah, life insurance.

Easy answer. If you are young and married and have little children you need life insurance.

At least a million of cheap term life insurance. If you die (what you are protecting) your wife and children won't have a harder time. This will be cheap while you are young.

As you (and your children and your wife) age, you should be building wealth, which is your own insurance. Not to mention the term insurance is growing more and more expensive.

So, when you are FI....You don need no stinkin' life insurance -

 

[athena53]

We have a friend that sells insurance. I had been retired for 4 years or so, I retired at 53. She was talking about insurance. not selling, just discussing. When I said we do not have any life insurance. She was visibly taken aback. She said what will DW do if you die. I said, I'm retired, no pension and we live off of our savings. No concept of this. Next question was, what will you do for final expenses? My reply was ... what 10 grand?

DH's final expenses were closer to $2,000- cremation and a nice church funeral.

I can see needing more life insurance if a couple is mostly dependent on SS. Sometimes it's a very unhappy surprise for the widow to discover after her DH's death that the Survivor benefit is what her late husband was getting and her spousal benefit goes away. (It applies to either partner, of course, but women are more likely to outlive their husbands). An adequate life insurance policy could help with that.

For a couple of years after DH died, AAA was still sending offers for "guaranteed issue life insurance" in small face amounts for final expenses. "You cannot be turned down!" The fine print noted that if you died within 2 years of issue, they just refunded your premiums. Not a bad deal if you have no insurance and want to provide coverage for final expenses. Eventually I sent the offer back and told them to stop, which they did.

 

[OldShooter]

... if you've been paying on a policy for many years, you probably should think long and hard about what to do with it. ...

WADR, this tempts the "sunk cost fallacy." (https://en.wikipedia.org/wiki/Sunk_cost) The history of costs is completely irrelevant to a decision today. Today's decision is based on the current financial and emotional facts that pertain. Cash value of the policy, for example, vanishes when the insurance company pays out on the policy, So the payout is not the face value, it is face value less cash value. Also, how does the cost of insurance compare to simply buying term insurance? To spend the cash value on the insurance premiums plus pay whatever other costs and fees are involved with the policy may be more expensive that an alternative -- if insurance is really needed at all.

Lots of facts to consider in the decision, but sunk cost is never one of them.

Behavioral Economist Daniel Kahneman: “The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects,”

 

[harley]

My original philosophy for figuring out my life insurance amount was to never be worth more dead than alive. IOW, keep the face amount at the minimum necessary for the task. In my case, it was about 1 years' worth of my salary. That would have been enough time for DW to get over her grief and then gotten a good paying job. Fortunately, it never was tested.

I think/hope that you are underestimating your spouse's affection for you. I don't know anyone who has lost someone dear to them and gotten over their grief in a year. If finances require it, yes, they would try to find a job. But IMHO at least two years of insurance money would be a better choice. Especially since two years worth really isn't that much more than one.

 

[CRLLS]

I think/hope that you are underestimating your spouse's affection for you. I don't know anyone who has lost someone dear to them and gotten over their grief in a year. If finances require it, yes, they would try to find a job. But IMHO at least two years of insurance money would be a better choice. Especially since two years worth really isn't that much more than one.

My statement was a bit tongue in cheek, but not far from reality. TBH, that was about 50 years ago. It was a different time back then. We both were working at the time. The norm was that the husband was expected to return to work if their wife had passed first. In fact, we had no LI policy on her. We both expected each other to continue to work if one of us met our demise first. The amount we chose was a joint decision.

Later, in our early 50's we did take out a much larger 10-year term life policy on me, but nothing on her. The value was about 3 year's of my then income. That expired and we have no LI today.

Many manage to get thru life with the loss of a spouse and having no life insurance at all. My observation of those I know who have lost a spouse, they never really get over it. They just learn how to deal with it. We haven't had to deal with it so far. It is likely that we won't go together, leaving one of us to deal with the loss eventually. Fortunately, we won't have financial issues to deal with.

 

[Koolau]

Yeah, life insurance.

Easy answer. If you are young and married and have little children you need life insurance.

At least a million of cheap term life insurance. If you die (what you are protecting) your wife and children won't have a harder time. This will be cheap while you are young.

As you (and your children and your wife) age, you should be building wealth, which is your own insurance. Not to mention the term insurance is growing more and more expensive.

So, when you are FI....You don need no stinkin' life insurance -

I completely agree with your philosophy. But with the special case here (insurance already in force for quite some time) there may be an angle or two to consider. As mentioned, it's a crap shoot whether your beneficiary might reap a nice pay out - especially if your health has changed significantly from the time you took it out as a low risk purchaser.

Take the limiting case: You receive a terminal diagnosis. Would you cancel your insurance policies (for any reason) at that time? Yes, you'd save some premiums, but your beneficiary would not receive a payout that is right around the corner. Stretching the thought a bit further (heh, heh, we're all terminal, after all): What if you have a number of potentially life threatening conditions? Would you give up insurance that is now more likely to pay off? It's not a clear cut decision, but, playing the odds might mean paying the premiums with a better chance of a payoff. That's where I'm at. I can't get my doctors to play the game with me. When I ask a direct question about my own longevity, I get a definitive shoulder shrug. (Thanks a lot doc!) So far, at least, I'm betting against myself reaching 99 (though that's still my financial plan.) YMMV