Canceling Term Life Insurance Policy Jitters

[Brat]

After my mother died I found a modest whole life policy with my brother, sister and I as beneficiaries. She hadn't updated it with our married names so sister and I needed to prove to the insurance company that we were the heirs. When I advised my sister she threw a fit about the work required. I told her file or don't, not my problem.

 

[arch57]

When we both reached 40 we purchased 20-year term policies at very good rates knowing we wouldn't need them at age 60 so we just let them lapse. Amazing how those 20 years flew by!

 

[NW-Bound]

Nope. It was just one less bill to pay!

+1

I don't remember when I stopped mine. I think it must be when my kids were in HS. At that point, I figured if I died, I had enough money stashed for my wife to take care of them till 21 and beyond.

 

[BeachOrCity]

When we both reached 40 we purchased 20-year term policies at very good rates knowing we wouldn't need them at age 60 so we just let them lapse. Amazing how those 20 years flew by!

Smart!

 

[isabellek]

Cancelling Term Life Insurance

My trust attorney advised me to keep my term insurance policy until I was sure that my daughter who would inherit my properties, etc. could afford to immediately take over all financial responsibilities including property taxes in the event of my death. She explained that so many people don't realize that heirs end up selling properties under financial duress because it takes a while to settle a trust, and death comes at unexpected times. So, I have chosen to keep my policy as an immediate cash source for this reason.

 

[brett]

We did exactly the same. We viewed term insurance as a financial tool, not an asset.

Never bought whole life, just loaded up on term when the risk to my spouse and children was present. The insurance went away when the financial risk was no longer present.

 

[dtbach]

I'm trying to talk my DW into cancelling our 10 year term. Took it out in early retirement years when still had kids ready to go to college and a bit far off from SS age. Well, now DW is taking SS and I'm taking restricted, the kids are done with college, inherited a sizable estate from my father and the fact is the term insurance would only add about 5% to our total.
But she wants the insurance in place and I guess if it makes her secure it's worth the $166/mo.

 

[ziggy29]

I'm trying to talk my DW into cancelling our 10 year term. Took it out in early retirement years when still had kids ready to go to college and a bit far off from SS age. Well, now DW is taking SS and I'm taking restricted, the kids are done with college, inherited a sizable estate from my father and the fact is the term insurance would only add about 5% to our total.
But she wants the insurance in place and I guess if it makes her secure it's worth the $166/mo.

There is also the angle of taking a very long term life policy and getting to the point where the insurance is cheap relative to the cost.

Back when we needed insurance for DW, in 2005 we took out a 30 year level term policy for $250K for $18 a month (she was 37 at the time), guaranteed level through 2035. We no longer need the insurance, but I also know that insuring a 51-year-old for the next 16 years for $250K at $18 a month feels like a bargain, so we still have it. Part of me insists we should cancel it because the financial need just isn't there any more. But I can't get myself to do it.

 

[Splash]

DH and I had term life insurance through our employers. Our coverage ended when we retired at 55 and our payroll deductions ended.

I'm trying to simplify things so I recently cashed in the whole life policy that my parents took out on me when I was born. The cash surrender value was ~$2k. Makes it clean, death letter says no life insurance.

 

[bingybear]

I'm trying to simplify things so I recently cashed in the whole life policy that my parents took out on me when I was born. The cash surrender value was ~$2k. Makes it clean, death letter says no life insurance.

I assume you will pay tax on that surrendered policy since you chased it and did not get the death benefit.

Years ago after my mom passed I got hit up by a baby policy company wanting me to take over the policy, but would not provided information until I signed that I'd take over the policy and get a bunch of documents. I was concerned I'd be taxed on dividends that keep the policy "self paying".

There is an investment scheme known as bank on yourself that uses over funding (by the owner and dividends) that allows the owner to borrow on the policy and keep the policy current. If the owner borrows so much that the policy can't pay the current cost, then the policy would lapse and IIRC the owner would owe taxes on the earnings (such as dividends that were used to pay the policy)

I could be mistaken.

 

[Splash]

I assume you will pay tax on that surrendered policy since you chased it and did not get the death benefit.

In my case, about 50% of the cash surrender value is taxable. The $120 in tax was worth the simplification to me. Others may feel differently so it is important to understand any cost implication before cashing in a whole life insurance policy.