Is it time to cancel my term life insurance policy?
January 4, 2021 7:14 PM   Subscribe

I'm a divorced 58 year old, with two adult children. I have a term life insurance policy that I have (thankfully) outlived with a 20 year lock in price that is coming to an end.

The policy is worth $250,000. The annual rate jumped from $565 to $945 this year and will continue to go up about $400 per year, until 2024.
I have about the same amount in life insurance through work, with little change in rate in the future. I was only able to get the price for the next 3 years.
I have no mortgage, no debt, the kids have no college debt
I have good retirement and savings in place.
Does it make sense to keep the insurance policy or better to let it go? I don't know if it matters, but I had cancer 20 years ago and now it is very challenging to get life insurance. Hence, buying through work makes sense.
posted by jennstra to Work & Money (14 answers total) 3 users marked this as a favorite
Best answer: If nobody is depending on you for financial support then nobody "needs" the life insurance payout if you die. It might make sense to have a small policy, say $25K, to cover burial and funeral expenses though.
posted by COD at 7:25 PM on January 4, 2021 [6 favorites]

Well, you could tell your kids they can spend $80,000 and get $250,000. There are worse investments. No one will suffer if you don't.
posted by Dynex at 7:29 PM on January 4, 2021 [1 favorite]

Best answer: My dad died at age 88. He left me a very modest insurance payout of about $30,000 that was very touching and very meaningful. I didn't need the money, particularly, but it was the sentiment that counted - and I deposited most if it into college accounts for his great-grandchildren, which benefited the next generation. Perhaps a policy reduced in value and reduced in cost naming your children as beneficiaries would allow them to feel the same affirmation when the time comes. My mom used to say that money is only money, it's not love, but when a parent dies it does show that the deceased parent was thinking of you and trying to ease your future. For me it was very comforting and affirming.
posted by citygirl at 7:30 PM on January 4, 2021 [3 favorites]

Best answer: If you're not supporting your children and don't expect to support them in the next few years (beyond what they would inherit from your savings and retirement), and you're in generally decent health, I'd say drop it. If you want to help them in the future, add the money you would have paid in premiums to your investments (or if it would help you to think about it this way, set up a new separate account and deposit the amounts you would have paid in premiums there).
posted by Mr.Know-it-some at 7:48 PM on January 4, 2021 [1 favorite]

Sometimes you can sell a life insurance policy. Investigate before you stop paying premiums.
posted by KayQuestions at 7:48 PM on January 4, 2021 [2 favorites]

Best answer: Drop the insurance. RESIST the hard sell tactics that will follow. Do not replace it with a "whole life" policy. Choose an amount less than, but close to the amount you would spend to continue the policy. Invest it however you please, to benefit yourself, or your children on your death.
posted by woman at 8:18 PM on January 4, 2021 [6 favorites]

Well, you could tell your kids they can spend $80,000 and get $250,000. There are worse investments.

This is true as far as it goes, but be sure there isn't a big fat hole in the deal, to wit: My sister and I were paying our mother's whole-life (I think--which possibly may distinguish your case from ours) policy premiums on this basis (we were the beneficiaries).

Her policy, however, provided that at age 100, the death benefit would immediately go to zero. As she got into her mid- to late-90s, we couldn't justify spending increasing amounts of money on a bet that she would die before 100 so that we could get the death benefit. It was both an iffy bet, very costly, and pretty ghoulish.

So we let the policy lapse and all the money we had paid to date went up in smoke.

Eternal curses on the advisors who convinced my mother, then in her 70s, that insurance would be an appropriate asset in her estate. At a certain age she realized that obviously life insurance was of no use to her personally, so she understandably quit paying the premiums, leaving it to us to try to salvage what remained of the policy value.

So, read the policy and look for this kind of trap before suggesting that your heirs take over your policy as an investment.
posted by JimN2TAW at 8:27 PM on January 4, 2021 [6 favorites]

Best answer: On average, you will lose money as a buyer of insurance. That's why there are insurance companies. Insurance makes sense when you (or the beneficiaries) cannot afford the adverse outcome. It does not make sense as an investment.

If you have no debt, plenty of savings, you're in good health as far as you know, and you have no financial dependents then you should not buy term life insurance. Add the money you'd spend on those three years of premiums to your savings.

(And it's completely different product, but since it's come up, and since people sometimes confuse it with term life insurance: do not buy whole life insurance.)
posted by caek at 8:32 PM on January 4, 2021 [8 favorites]

Response by poster: Thank you all for your answers. To be sure, the policy is of no value, until I die.
I'm letting it laspe and shall use the premium dollars another way.
posted by jennstra at 8:37 PM on January 4, 2021 [7 favorites]

Best answer: Before you drop it, explore selling it. There are firms that will buy a life insurance policy. They make a payout now (less than the payout at death) and pay the premiums. It is a straight financial transaction.
posted by AugustWest at 9:00 PM on January 4, 2021 [3 favorites]

Best answer: jennstra, what AugustWest and I are trying to tell you is that your policy does have value now. There are companies that will buy it from you. It might be worth $50,000 to $100,000 right now, with you never paying another premium. At the very least google it and make a few calls before you let it lapse. Once you let it lapse, it is too late to sell it.
posted by KayQuestions at 9:09 PM on January 4, 2021 [6 favorites]

Response by poster: I am finally understanding what you saying! That the policy might be sellable. I'll look into that angle. I was only thinking of the difference between term and whole life value.
Thank you for the suggestion.
posted by jennstra at 10:01 PM on January 4, 2021 [2 favorites]

Besides just selling it straight out, you might want to consider whether you could convert to Long Term Care Insurance. This would be to cover your care needs (caregivers, assisted living, nursing home)--the cost of long term care is much higher than most people think and isn't covered by any of your traditional medical insurance or Medicare and only in very rare instances by Medicaid. That's irrelevant if you've already got your long term care plans sorted but worth considering if your plan was previously to just use your savings.
posted by assenav at 8:16 AM on January 5, 2021 [6 favorites]

Long term care is quite expensive, but most people don’t need it and policies have exclusions. Read the fine print if you go that route.

I briefly worked for insurance agents, and selling your policy to someone with no insurable interest is a bit shady. You understand that they’re betting that you’ll die prematurely? The office I worked in forced out the agents who wanted to do that and, personally, those guys were total assholes (to me, the lowest paid staff member, who came on after the split was forced). Again, read the fine print.
posted by momus_window at 5:13 PM on January 5, 2021

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