Term Insurance

[Samg]

All,

I have about 8 years remaining on 2 large term life policies that cost about $1500 a year, I'm 45 and have recently pulled the plug and looking to enjoy early retirement. I have 3 kids between 12-16 and when the policies were purchased the thought process was for coverage for my family in the event of my death. Well, I'm still alive thankfully and had a great career; I'm not sure I need the policies any more.

Any thoughts? I can afford the annual payment however it seems unnecessary as I have the money available in my accounts if I were to pass in the next 8 years.

 

[pb4uski]

If you were to pass tomorrow would your heirs have sufficient funds to provide for them in their current lifestyle, pay for college as you currently plan, etc. If so, you don't need life insurance. If not, then you may need some and might keep one or both policies.

 

[Sunset]

If you were to pass tomorrow would your heirs have sufficient funds to provide for them in their current lifestyle, pay for college as you currently plan, etc. If so, you don't need life insurance. If not, then you may need some and might keep one or both policies.

+1

Good answer.

 

[jimnjana]

I'd be inclined to keep at least one of them until the kids are out of college...

 

[ivinsfan]

I'd keep one in case you have health changes and can't qualify for insurance. In 8 years you'll be that much closer to SS and your youngest kid will be 20. I don't know if you have a spouse, if you are single, your kids will get SS until they are 18 so maybe you can dump both of them if you want I mean the policies not your kids). In fact if you are single you might want to keep one to give the kids guardian or surviving parent some easily accessed money.

 

[panacea]

If you were to pass tomorrow would your heirs have sufficient funds to provide for them in their current lifestyle, pay for college as you currently plan, etc. If so, you don't need life insurance. If not, then you may need some and might keep one or both policies.

+2

You may want to also think about what a large stock market correction could do your portfolio. Would your family still have enough to cover retirement, debt, college, etc. with a 10% drop? 20%? 30%?

 

[phil1ben]

Just retired at 56. I am in the same boat. I have a 3MM term policy that has 6 years left and my two sons are in college. If something should happen to me neither my wife nor my sons need the money. It runs about $2,500 per year. I have decided to keep it. Every little 3MM helps in the event.....and it only will cost me $15,000.00 over 6 years. All in all I am hopeful the return stinks but if not.......

 

[retire2020]

I've two 1M 30 years term life policy and wife has two 500K..still has 14 yrs left. It costs me 3900/yr. My family has enough if we were to go but I'll still keep them and pay the premium til We/Policies expires..... Having 2M/1M more than needed is a good thing. I've already added these premiums in my yearly budget.

 

[RE2Boys]

I'm in year 17 of a 20 year policy, $300K for about $715. Younger one a year away from college. Since I'm almost 67, I've decided to keep it though probably would be OK without it but pension gets cut in half.

 

[gauss]

I'll go ahead and take the other side of this.

From my perspective if you are FIRE then you no longer need life insurance unless your income streams die with you.

I would not dwell on the sunk costs (without a payout yet) of the premiums paid to date.

If you need further analysis, consult mortality tables for someone your age and general condition to calculate probability of dying during each of the remaining years of the term.

I suspect that you will find that the insurance company is being handsomely rewarded for the risk of a payout that is not needed by you.

Don't confuse insurance, which in its pure form is the outsourcing of risks that you cannot afford, with investing.

-gauss

 

[brucethebroker]

(After 17 years in life insurance sales,) I agree with those saying not needing it once you FIRE. Unless it is for estate purposes.

Life insurance is to replace the income of the insured. Could be from a job. Could be a SS or pension payment. If your spouse gave up a pension survivor benefit, as example, you should keep the policy. The same if the purpose was for estate panning. But if future income is assured in the event of your death, there is most likely no need for the policy.

Might be a good idea to get a second opinion from your CPA or attorney first, though. And, in most cases, proceeds from a life insurance policy are tax free, as opposed to passing on an IRA, for example.

 

[pb4uski]

I'll go ahead and take the other side of this.

From my perspective if you are FIRE then you no longer need life insurance unless your income streams die with you. ...

+1 If you continue to pay premiums after you are financially independent and don't need the life insurance as some posters above are doing, what you are in effect doing is placing a bet on your own life with the insurance company. You earned and have the money and are welcome to place that bet if you wish.

It get an idea of how wise or unwise a bet it is, multiply the benefit by the probability of death for someone your age from mortality tables to get the expected payout and then compare that to the premium.

 

[RE2Boys]

+1 .

It get an idea of how wise or unwise a bet it is, multiply the benefit by the probability of death for someone your age from mortality tables to get the expected payout and then compare that to the premium.

Payout over seven times the premium.

 

[gauss]

RE2Boys,

I am no actuary but the following life table suggests to me that the chance of dying between year 66 and 67 is 0.016267 or about 1:61.

Is your annual premium ~ 7 times the policy payout amount?

-gauss

 

[RE2Boys]

Using SS life table, chance of dying 67-68 is 0.018463 times payout> 7 times premium for that period.

 

[Independent]

I dropped my term policy as soon as I knew my family would live "comfortably" on savings, SS benefits, and pension.

I don't play the lottery. I'm not going to buy insurance that I don't need, that's just betting on my own life in a situation where the house normally wins.

One exception would be that I knew I was in substantially worse health than the average person my age. In that case, my heirs might have favorable odds.

A second might be that I bought a policy with a 20 or 30 year level premium period and I'm toward the end of the level period. Again, in that case, my heirs might have favorable odds.

 

[pb4uski]

I'm sure that the actuaries will eventually weigh in but just remember that is average... if you are in good health and wealth then the probability is lower and if you are in bad health and poor then the probability is higher.

But you are correct... 7 times is a lot of redundancy.

 

[gauss]

I guess I stand corrected.

The rational choice would of course for RE2Boys to continue his policy.

I suspect that the early years of the policy were likely subsidizing the later years-- but hey, I have already been wrong today once.

Thanks
-gauss

 

[medved]

If one is trying to figure out whether to "make the bet" or not, I don't think looking at mortality tables is sufficient. That is a good place to start, but then consider your genetics, your own health history, your diet, how much exercise you get, and your stress level.

 

[Quest4Fire]

Keep in mind your family's expenses drop after you do... Also banking the premiums adds to the pot. In our case, will terminate them when FI.

 

[Sunset]

Just be sure to tell your spouse etc about the existence and location of the policy. Many as in 100's of insurance companies have paid fines to States after they were discovered to not be paying out the life insurance, even when notified (death certificate) or when they knew themselves via the "death file" (a SS file).

Lots of big name insurance companies too.