Drop term life insurance when nearing FIRE?

[brett]

I dropped mine.

Did our pre retirement financial planning. My spouse did not need the money in the event of my demise and there were no tax reasons to keep the policy.

Three years on we are glad that we dropped it. It was not a large policy. A large component of my former coverage came from inexpensive optional term life from my employer prior to retirement. Never did buy whole life or any of the other hybrid policies.

 

[Sarah in SC]

+1 Same here. No great reason other than the fact that it is still so cheap I'll keep it. It will help her afford the pool boy if I have an early demise.

We sincerely appreciate you looking out for our pool boy needs, here in wife-land.

We are doing the same, with our very inexpensive and modest amount of 20 year level term that will run out in about 5 years.

 

[brett]

Longevity may be hurting pension plans (more years of payout) but it is definitely helping life insurers.

Living longer means that paid up whole life policies take longer to pay out. Increased investment income and time value of money mean more income and less real outlay for the insurers.

Term life policies get paid for a longer term.

Wonder if there has been any decrease in policy costs to reflect this?

 

[athena53]

Longevity may be hurting pension plans (more years of payout) but it is definitely helping life insurers.

<snip>

Wonder if there has been any decrease in policy costs to reflect this?

Yes. Mortality tables take a long time to update- maybe every 5 years? I'm a casualty actuary so not that familiar with the life side. They do include a provision for anticipated improved mortality over what's implied by the latest table. One actuary told me, though, that with increasing obesity, diabetes, etc. those improvements may be leveling out.

 

[kaudrey]

I just got a 10 year term. We plan to retire in 10 years at 57. I won't renew it - just want to give DH the money to replace my income if I should go first.

 

[RockyMtn]

Dropped the term but upped the umbrella coverage.

 

[DrRoy]

I agree that if you are FI you should drop it as an expense you no longer need. I did it years ago even before fully FI.

 

[Fedup]

I still keep mine. It's part of my budget. Who knows, I might drop when I turn 60.


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[Aiming_4_55]

Each case is unique.

In my early 40's I decided to buy a 30 year term policy as I transitioned to a contractor/self employment situation. The cost is low and built into my budget for retirement. I will probably retire or semi-retire when I'm 50.

I'll probably keep it for the duration depending on my health status in my 50's and 60's. Perhaps, I'm just betting I won't live into my mid-70's and the pay-off would benefit my kids. YMMV and i might change my mind.

 

[ziggy29]

Generally, it's okay to drop the term insurance when you've got enough saved so that the surviving spouse won't have a financial hardship. The insurance has done its art at that point. But be sure you're really there--that any reduction in SS, pensions, medical insurance, etc won't lave the survivor in a financially tough spot.

And make sure that when the surviving spouse has to file as single and kicks into a higher tax bracket, has more of their SS taxed, et cetera, that this is also accounted for.

I've said it here a few times before but I'll say it again because IMO it's important: My dad died in 2005. In 2006 my mom's income declined by about $9K (she inherited my dad's larger SS check but lost her own) and her income taxes *doubled* because of filing single -- moving her from the 15% bracket to 25% -- and because now 85% of her SS was taxable (at 25%) instead of 50% of it at 15%. These are huge hits.

 

[Scarecrow]

About 13 years ago we bought a 15 year term policy for DW. We don't need it anymore, but, just kept paying since it is so cheap. At 15 years, there is an option to renew, but the premium goes up dramatically. Will definitely drop it then.

 

[Al in Ohio]

+1

We are in a similar situation, the monthly cost is only $24

Only $24 per month? That's not LBYM tyoe of language!


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[beanctr88]

How much term can you get for $24 per month? If you are eight to ten years from retirement, what multiple of your income would you want to have in insurance to protect your spouse?

Or if you are closing in on FI, would you consider backing out taxes and current savings and just have enough term to cover the desired multiple of expenses?


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[Downtown]

Thanks for everyone's input. We decided to renew this year, but may drop the policy when next year's renewal rolls around since we will be one year closer to FIRE. Interesting to see the wide range of views on this subject.


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[mickeyd]

We have no more term LI coverage.

We still have a couple of small WL policies that are 40+ years old that provide a cash value increase of 3% and the annual dividends are sufficient enough to pay for the annual premium. If we surrendered to contracts for cash, the cash would be sitting in our Ally account getting an APY of 1%.

Dividends pay all premiums. 3% vs 1% return rate. Very small actual life insurance coverage. We will keep it for a while, but consider it as part of our cash reserves actually.

 

[kimcdougc]

Dropped the term but upped the umbrella coverage.

+ 1. Upped umbrella from 1 million to 2 million.

 

[cbo111]

We both keep $250K term policies until age 65 as an alternative to long term care insurance. Of course this strategy assumes the long term care event results in death. I think this is a reasonable assumption and I don 't have to worry about insurance premium hikes or carrier defaults.


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[samclem]

We both keep $250K term policies until age 65 as an alternative to long term care insurance. Of course this strategy assumes the long term care event results in death. I think this is a reasonable assumption and I don 't have to worry about insurance premium hikes or carrier defaults.

Would you self-fund for LTC after age 65? 63% of those in LTC are over age 65 (and you'd have to die before age 65, not just be in need of LTC, for the life insurance idea to work). Of the total population over age 65, 68% will be eventually become cognitively impaired or be unable to perform at least 2 ADLs (source), so the life insurance wouldn't help there, either.

I do like the stability of the life insurance product (compared to LTCi), but for us it wouldn't fill the need. Now, if I thought we could self-fund LTC after age 65, it would be an idea worth considering for us.

 

[Al in Ohio]

Just got annual bill for term life insurance policy (if I die, DW is beneficiary). DW and I are nearing FIRE...hopefully in the next 2-4 yrs. My question is when, or if, to drop term life insurance since we already enough $ for DW to live a very comfortable lifestyle without me around. I think there's about 10 years left on the policy. House will be paid off in 2016, and college funds are already set aside. What did you do? Did you use the annual premium funds for other purposes, or keep the policy funded...just in case? Thanks for your wisdom in advance!

Downtown


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I had a ten year term policy with five years remaining. My company has a one year salary life insurance benefit. So with one year left to work I canceled the term life I had and started investing the extra $100 per month I was saving. It's a no brainer. The one year salary worth of life insurance benefit would cover the last year of lost wages should I die before I earn my last years wages. Once your done working there is no wages lost left to replace. Continuing to carry any life insurance after retirement is simply a gamble at that point with the odds not in your favor. And it's not to replace for your heirs, but enhance things for them at your expense. That's a fools bet.


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