Winding down life and disability insurance

[HenryD]

I know there is no one size fits all answer for this, so I am soliciting opinions/experiences.

• 4.5 years from target ER in 3/2025.
• Current NW is half what I consider FI, but we are on track.
• Me, self-employed. DW has a solid corp gig with excellent benes. Total comp similar to mine.
• Kids college is covered, not part of our NW.

1) My term life insurance expires in 2026. Would not maintain coverage later than 2024, but would the remaining premiums be better just saved? Potential savings $3K total premiums vs $1.75M payout. DW could immediately FIRE on a modified plan if it happened.

2) My long term disability would pay $4K(?) a month through 2034. But, I could lose an arm, both legs, my hearing and still work just fine. Would need to be completely blind, lose both hands, or become severely mentally incapacitated to be considered disabled enough not to work. Policy is a hangover from when I had a minor child and was sole provider. Potential savings $5.5K total premiums.

My inclination is to keep the life for at least one more year, but stop paying the disability premiums. But it feels like an entirely emotional decision. By the numbers, I don’t think I have an insurable need. What would/did you do?

 

[CaliKid]

I'd keep the life or even look into a new 5 or 10 year term at a lesser amount. It's so cheap. I am less inclined to pay for disability when you are close to fire anyway.

 

[pb4uski]

So if you were disabled you could live/survive on your wife's income and savings? If so, then you don't need DI... if not then perhaps you do.

Ditto for life... if you died then your DW and kids could live/survive on her income and savings?

 

[OldShooter]

Well, at the bottom, the purpose of these types of insurance is to protect people who are reliant on someone's employment income.

(1) Is your family relying on your income to maintain its standard of living? On your wifes income? If yes in either case, then some level of term insurance is probably warranted.

(2) If your income drops due to a disability, will that materially affect your family's standard of living? If no, then the insurance may not be needed. But probably there are some kinds of disability (stroke, perhaps) that would affect your earning ability.

The fact that the term insurance cost is almost double the disability seems odd to me, but I am not hampered by any facts or professional qualifications. Just SGOTI. You might want to shop both of them, though, to verify the numbers.

 

[HenryD]

So if you were disabled you could live/survive on your wife's income and savings? If so, then you don't need DI... if not then perhaps you do.

Ditto for life... if you died then your DW and kids could live/survive on her income and savings?

We absolutely could live on DW's income. Her retirement would get pushed back some if I was dead/disabled without insurance. She'd be disappointed but still be able to retire sooner than if we'd never met.

DW tells me that if I die in the next couple of years she'll lose her sh*t emotionally, so I'd like to be able to let her just immediately dump w*rk and pull the trigger on the cat sanctuary she'd likely want to start in Costa Rica.

 

[pb4uski]

We absolutely could live on DW's income. Her retirement would get pushed back some if I was dead/disabled without insurance. She'd be disappointed but still be able to retire sooner than if we'd never met.

DW tells me that if I die in the next couple of years she'll lose her sh*t emotionally, so I'd like to be able to let her just immediately dump w*rk and pull the trigger on the cat sanctuary she'd likely want to start in Costa Rica.

The all you need to do is to figure out how much she would need to do that... then subtract you existing resources... that is the amount of life insurance that you need.

BTW, if your life insurance need is less, you might be able to reduce the amount of coverage and get a corresponding reduction in premium... it doesn't necessarily have to be all or nothing.

 

[HenryD]

(1) Is your family relying on your income to maintain its standard of living? On your wifes income? If yes in either case, then some level of term insurance is probably warranted.

DW has policies through w*rk; those will stay as we don't pay those premiums. We do buy a little excess life for her through work. We will drop that in 2024 at the latest.

(2) If your income drops due to a disability, will that materially affect your family's standard of living? If no, then the insurance may not be needed. But probably there are some kinds of disability (stroke, perhaps) that would affect your earning ability.

It would impact our ability to save, but not to pay bills. It would push back DW's retirement date by maybe 5 years depending on the circumstances, but she would likely still be done by 60.

The fact that the term insurance cost is almost double the disability seems odd to me, but I am not hampered by any facts or professional qualifications. Just SGOTI. You might want to shop both of them, though, to verify the numbers.

Remaining term premiums are $3K, LTD $5.5K, so LTD is more. I probably overpaid for LTD. Each month of course the benefit is worth a bit less - amounting to less than $700K now.

 

[HenryD]

BTW, if your life insurance need is less, you might be able to reduce the amount of coverage and get a corresponding reduction in premium... it doesn't necessarily have to be all or nothing.

I hadn't thought of that... thanks. The annual premium is due in December; I guess I'll give them a call on that idea before then. I don't need more than $1M. My remaining potential earnings are around $750K.

 

[Sarah S]

What if you are disabled and need someone with you at all times? If you can’t work and your wife has to stop/reduce hours or pay for someone to stay with you while she works?

It does happen. It happened to my sister who had ALS. I know a woman whose 32 yo husband got dementia ( no family history)

 

[RetMD21]

I hadn't thought of that... thanks. The annual premium is due in December; I guess I'll give them a call on that idea before then. I don't need more than $1M. My remaining potential earnings are around $750K.

I like the idea of decreased premiums and benefits. I used term and reached FI when my level premium was up. I would have liked to have 0.5 of that amount in insurance for a cushion but applying for term at 50 was too complicated so I just let it slide.

 

[HenryD]

What if you are disabled and need someone with you at all times? If you can’t work and your wife has to stop/reduce hours or pay for someone to stay with you while she works?

It does happen. It happened to my sister who had ALS. I know a woman whose 32 yo husband got dementia ( no family history)

Youngest child is an HS senior this year. College covered. We would move up the date on the downsize of the house. Our planned retirement lifestyle (liveaboard boat) would get canceled by disability of either of us. Cost of round the clock care for me would be tough to handle, and it's true the disability payout would help with that.

No history of dementia on my side. No prescriptions, no medical issues. Plant-based diet. I feel low risk, but you are correct, it can and does happen.

 

[cathy63]

What if you are disabled and need someone with you at all times? If you can’t work and your wife has to stop/reduce hours or pay for someone to stay with you while she works?

It does happen. It happened to my sister who had ALS. I know a woman whose 32 yo husband got dementia ( no family history)

Yes, this. Living with a disability can cost a lot more than just losing a salary. I assume your long-term plans account for the case where something happens after you retire, but I'd recommend keeping that insurance until you reach FI.

 

[HenryD]

Yes, this. Living with a disability can cost a lot more than just losing a salary. I assume your long-term plans account for the case where something happens after you retire, but I'd recommend keeping that insurance until you reach FI.

Good point, thanks.

 

[Sunset]

Yes, this. Living with a disability can cost a lot more than just losing a salary. I assume your long-term plans account for the case where something happens after you retire, but I'd recommend keeping that insurance until you reach FI.

+1
I know from experience.

OP - since you are working, surely there is LTD insurance from work (pick the type you pay the full amount as is tax free if claim it). The LTD from work, even if you pay is usually low cost.

 

[daylatedollarshort]

We kept disability and life insurance until we reached FI. But also lowering our expenses, including dropping disability and life insurance, are what helped us reach FI sooner rather than later.

 

[Mark1]

We kept disability and life insurance until we reached FI. But also lowering our expenses, including dropping disability and life insurance, are what helped us reach FI sooner rather than later.

+1

I dropped STD insurance prior to LTD, when I noted that Mega Corp paid for the first few months based on my years of service even if I didn't buy STD. Therefore, I was paying the same premium as the new hires, but for fewer months of actual coverage. Yes, I'm cheap.

Also, drop LTD when I was close to FI. I figured that to qualified for LTD checks, I would first need to get SS to start sending me a SS disability check. Not sure if this was right, but that we my logic at the time.

 

[Sunset]

.... I figured that to qualified for LTD checks, I would first need to get SS to start sending me a SS disability check. Not sure if this was right, but that we my logic at the time.

Relative's experience was they went on LTD paid by insurance company, then after a few years when it was obvious it was not getting better, they forced the person to apply for gov't disability.
So now the person gets disability SS + a small make up the difference check from insurance company.

 

[pb4uski]

^^^ Poor advice IMO.

While if is true that level premium is better value later in the term than earlier, if the OP doesn't need the insurance just then it is foolish to keep paying for it of you no longer need it solely because it is a "good deal".

That would be like keeping car insurance when you no longer have the car because you found a great deal.

 

[OldShooter]

... Term life and disability both have a flat premium rate ...

Sorry, not always true. Once can buy level premium term but the OP may not have done that. IMO its not a good choice when young and short of money. Better to let the premium rise with age and, presumably, personal prosperity.

Compare how much it would cost you per month for term life and disability if you purchased new policies right now. The monthly premiums would no doubt be multiples of what you are paying on your existing policy. That's the value you're giving up by terminating early. Don't do it.

If the OP doesn't need the insurance he is giving up no value. He is eliminating cost. If makes no sense to hypothesize a cost that doesn't exist, then tell the OP to make decisions on that basis.

By saying this I am in no way saying what the OP should do (see my earlier post) but WADR it would be crazy to make a decision based on this IMO weird analysis even if the OP does have level premium term.

 

[OldShooter]

... Yes as it happens you didn't end up needing to cash in on either policy. You were lucky. That's fine. By the same token, you would have "saved" a lot more money by never getting either kind of insurance in the first place.

Sigh. ... The purpose of insurance is to protect against risks that the insured does not want to bear. That protection has a cost. When I didn't need protection against the risks, life insurance or LTD, I dropped them. I then no longer had the cost. This is not a "saving," it is simply a decision to no longer buy something I used to need but don't need any longer.

Also please stop saying that term life and LTD charge "flat level premiums." This is simply untrue. Some policies do, some don't. Mine didn't.

 

[daylatedollarshort]

I don't think this is quite the correct way of analyzing the situation. Yes, you saved the premiums when you dropped the insurance. That's the value you received. But did you compare that to the value you gave up by cancelling the policies? The value you gave up is basically the cost of the premiums you would have had to pay on brand new policies purchased at the age you were, when you dropped the old ones. Because these policies charge flat level premiums, i.e. you pay the same exact monthly premium for the 15, 20, or 30 years of the policy, your payments to the insurance company are "front loaded" yet the potential benefits are "back loaded." You give up a lot of (intangible, but real) value by dropping these policies close to the end of their terms. That's the value you lost. Even if thankfully you never would have had to cash it in. Because you didn't know that at the time you dropped the policies.

Yes as it happens you didn't end up needing to cash in on either policy. You were lucky. That's fine. By the same token, you would have "saved" a lot more money by never getting either kind of insurance in the first place.

We had term life insurance so the cash value was $0. If you mean the savings over a current policy, it makes no sense to pay for something you no longer need or want, even if it costs less than the current market rate. Your example would be like keeping a grandfathered cable plan that costs $100 a month instead of $200 a month plan for new customers when you decided you no longer wanted cable. You're not saving $100 a month if you keep the cable, you are spending $100 a month on something you don't need or want.

To use random numbers as an example, my point was that if you have $2M in savings and spend $200K a year, you might not be FI, but if you can hack all your expenses and live the same lifestyle on $80K or less, there you go. You may have reached FI. Health and disability insurance for us were several thousand dollars a year. Cutting those out was a boost to our expense hacking, reducing our run rate and helped in achieving FI. There was no need for us to price new insurance policies we no longer needed. If one of us died the other would still had more than enough income to live on from investments, pensions with survivor benefits, and the larger Social Security, plus equity to invest from downsizing the current house. And I doubt disability insurance would even pay out to a retired person.

 

[Mark1]

..
You may have reached FI. Health and disability insurance for us were several thousand dollars a year. Cutting those out was a boost to our expense hacking, reducing our run rate and helped in achieving FI. There was no need for us to price new insurance policies we no longer needed. If one of us died the other would still had more than enough income to live on from investments, pensions with survivor benefits, and the larger Social Security, plus equity to invest from downsizing the current house. And I doubt disability insurance would even pay out to a retired person.

+1 That is exactly where I was at.

Also, I always insure myself whenever possible as I figure much of the insurance premiums are just going to administrative overhead.

 

[OldShooter]

Most <snip> worth.

Gee, it's really nice that you came along to explain insurance to us. Without you I guess we would still be in darkness.

I understand insurance pretty well and @pb4uski was an insurance company financial executive. Both of us and, apparently others here, think your "discounted lottery ticket" approach is not useful. Your explaining it over and over and over again really won't change that.

Have a nice day.

 

[Montecfo]

Back to the OP: when I retired I dropped LTD. I have dropped most of my term life insurance except for a small policy I have kept in lieu of a LTC policy for now or, alternatively, as a lottery ticket relative to my personal health. It is a group policy so it has remained relatively expensive though the cost has never been flat.

I consider myself healthy, but I do have coronary artery disease.

 

[HI Bill]

If I didn't have an insurable need, I wouldn't pay for insurance. As I was single until 6 years ago, the only life insurance I've ever had was through my company, and equal to one year's salary. Once I married, I still did not buy insurance, as my wife's assets + my assets means she'd never have to work, even if I passed away on my wedding day.

What you paid for insurance in the past is immaterial. The cost to maintain the insurance until the guaranteed payout (upon death at some assumed age) is what matters. If you can afford to continue paying the premiums, and project that the payout benefit will exceed your future premium costs, and the survivor can improve their quality of life with the payout (or you want to leave a larger inheritance), then keep on paying. If not, don't! If it's only for the DH, then I'm not sure it's worth it, as DW could always predecease the DH.