Haris Ashley
Life insurance is a tool to reduce the risk of financial troubles for your loved ones after your death. While it is a good idea to reassess this risk every few years, it is a highly personal decision and there is no age cut-off that makes life insurance no longer worth it. If you have paid off your life's most significant expenses, such as your mortgage, or your children are now financially independent, you may be able to drop your policy. However, if you are considering cancelling your life insurance policy, it is important to also think about future financial obligations, such as college tuition or weddings. You should also consider the likelihood of paying higher premiums for a new policy, as insurance premiums are rated in part on age and health.
| Characteristics | Values |
|---|---|
| Financial situation changed | Paid off mortgage, children have established careers, medical expenses, etc. |
| Life insurance no longer meets your needs | You need increased coverage or additional features, or you want to lower premium costs |
| You have term life insurance | You may be encouraged to convert to a whole life policy, which is much more expensive |
| You have permanent life insurance | You may receive a cash payout upon cancellation, but surrender fees may apply |
| You have a new policy | Do not terminate the old one until you have received and accepted the new one |
| You are older than 65 | You can surrender your policy, let it lapse, or sell it through a life settlement |
| You have a pre-existing medical condition | You might want to consider buying whole life insurance |
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What You'll Learn
If you're 65 or older
When considering life insurance at this age, it's important to note that age plays a significant role in determining the cost of premiums. As individuals age, the cost of life insurance premiums generally increases due to higher mortality risks. Insurance companies consider older individuals to be more likely to experience health conditions or pass away, leading to increased premiums to compensate for the higher potential payout.
There are several types of life insurance policies available to those 65 and older, including term life insurance, whole life insurance, universal life insurance, and final expense insurance. Term life insurance is a good option if you have an idea of how long you may need coverage, as you can choose the specific length of your plan, typically 10, 20, or 30 years. However, the older you are, the less variety there may be in term lengths, and the fees may rise as you age. Whole life insurance provides coverage for your entire life, regardless of when you pass away, and some plans offer a cash value component that can be used to pay off large expenses. Universal life insurance and whole life insurance generally have no maximum age limit, while term life insurance typically has an age limit ranging from 75 to 86 years old. Final expense insurance, also known as burial insurance, is designed to cover end-of-life and funeral expenses and is typically available up to age 85.
When choosing a life insurance company, it's important to consider your goals and the amount of coverage you need. MassMutual, Guardian, and Northwestern Mutual are often recommended for seniors, with MassMutual allowing applicants up to age 75 for term life insurance and up to age 90 for whole life and universal life policies. Protective also offers nine customizable life insurance policies, including the Survivor Universal UL policy, which is a good option for married seniors as it can help offset estate taxes. Pacific Life's Elite Term policy is another option for those 75 years old or younger, offering coverage up to $3 million with a 10-, 20-, or 30-year term.
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If your children are financially independent
Firstly, it's important to understand the type of life insurance policy you have. Term life insurance is the least expensive option and is typically purchased for a specific period, such as 10, 20, or 30 years. If you have a term life insurance policy, it's essential to review the end date and consider whether you will still need coverage at that time. On the other hand, whole life insurance or permanent life insurance policies do not expire at a certain age but tend to be more expensive.
If you decide to discontinue your life insurance policy, there are a few options available. One option is to simply stop paying the premiums, which will cause the policy to lapse. However, this means you will lose out on most of the money you've already invested in the policy. Another option is to sell your policy through a life settlement, which can provide a cash payout that is typically larger than the surrender value. Alternatively, you can convert your traditional life insurance policy into a paid-up policy without exiting or surrender the policy and request the surrender amount from the insurer.
It's worth noting that discontinuing your life insurance policy may come at a cost, and you should review your policy carefully to understand any potential penalties or reductions in the maturity sum. Additionally, it's always recommended to consult with your insurance provider and financial advisor before making any final decisions. They can help you navigate the complexities of your policy and ensure you make the best decision for your unique circumstances.
Remember, life insurance is not just about financial dependents. It can also provide peace of mind and help cover final expenses, such as funeral costs. Even if your children are financially independent, consider your other financial goals and obligations when deciding whether to discontinue your life insurance policy.
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If you've paid off your mortgage
Paying off your mortgage is a significant financial milestone. Congratulations! But what about the life insurance policy you took out to protect your mortgage? What happens to it now?
Firstly, it's important to identify the type of life insurance policy you hold. If you have a term life policy, it only provides pure protection without savings or investment components, and it likely has no remaining value once the mortgage terminates. On the other hand, some types of life insurance, like whole life insurance, accumulate cash value, savings, or investments as you pay into them. If your policy has a substantial cash-in value, you may want to keep it and withdraw or borrow the cash amount as supplemental retirement income, or use it to reduce future premium costs.
Next, consider whether life insurance still makes sense for your financial situation post-mortgage. Even without a specific debt to cover, the death benefit could be useful for replacing your lost income for family living expenses. If your financial obligations didn’t disappear along with the mortgage, maintaining coverage is probably wise. You can usually reduce the amount of insurance needed, but cancelling entirely may leave loved ones vulnerable.
If you decide to cancel your life insurance policy after paying off your mortgage, make sure you understand the implications. Check if your policy has any cash value or savings that you’ll lose by cancelling, and look into any early termination fees. Contact your insurer to begin the cancellation process and provide written notice. Also, let your beneficiaries know that the policy will be terminated so they don’t try to file a claim later.
Finally, don't forget to update your policy details. Contact your insurance company or broker/agent to remove the lender’s name from the policy. You also want all bills and policy notifications to come directly to you from now on. Take this opportunity to review your coverage and make sure it matches your current needs and circumstances.
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If you have no large debts
Life insurance is a tool that helps reduce the risk of financial troubles for your loved ones after your death. It is often taken out when individuals have large debts, such as a mortgage, that they do not want to pass on to their family. If you have no large debts, you may still want to keep your life insurance policy to cover everyday living costs that your family might struggle with in your absence, such as gas and groceries.
If you are the primary breadwinner, your family may struggle to support themselves and your children without your salary. In this case, it is worth keeping your life insurance policy to ensure your family can afford daily expenses, pay their bills, and retire comfortably. However, if your family can afford these costs without your income, you may consider cancelling your policy.
Another factor to consider is future financial obligations. Ask yourself: are you planning to pay for your child's college tuition or wedding in the future? If the answer is yes, you may want to keep your life insurance policy to cover these costs. Additionally, consider whether your family can afford your burial expenses. The average funeral costs around $10,000, and a death benefit from your insurance could cover these costs.
Finally, if you have a term life insurance policy, you may be encouraged by your agent or insurance company to convert to a whole life policy as you approach the end of your term. While whole life insurance offers lifelong coverage, it is much more expensive than term life insurance, and the rate of return on the investment portion of premiums is often low. Therefore, if you have no large debts and your family can afford daily expenses and future costs without your income, you may consider cancelling your policy at the end of the term rather than converting to a whole life policy.
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If you have no future financial obligations
For example, you may have initially purchased a life insurance policy to pay off a mortgage, but you've managed to pay it off earlier than expected. In this case, you could consider cancelling your term life coverage. Similarly, if you are no longer concerned about burial expenses, you may not need life insurance, as the average funeral costs around $10,000.
If you have a whole life insurance policy, you may want to consider converting it into a reduced paid-up life insurance policy. This option allows you to stop paying premiums and instead use your cash value to purchase a policy with a reduced death benefit. Alternatively, you could use your cash value to cover your premiums until you are in a better financial position. It is important to note that the cash value should not go below the minimum required amount, which is usually equal to your premium amount and any other policy fees, to avoid your policy lapsing.
If you are considering cancelling your life insurance policy, it is important to review the details of your policy to understand the impact of cancellation. Cancelling your policy may result in financial losses, as you will no longer be paying premiums, and your beneficiaries will not receive death benefits when you pass away. Additionally, you will not receive a refund of your premiums unless you cancel during the "free-look period", which typically lasts between 10 and 30 days, depending on your state.
Before making any decisions, it is recommended to consult with your insurance agent or company to discuss your options and ensure you are making the best choice for your financial future.
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Frequently asked questions
If you've paid for your life's most significant expenses, you may be able to drop your life insurance policy. You should reassess the risk to your loved ones of financial troubles after your death every few years, especially if the premiums are high.
Your children have established careers and are financially independent, you have medical expenses or other debts to pay, you would like to spend your retirement travelling, or your expenses are too high for living on a fixed income.
You may want to lower premium costs, increase coverage, or take advantage of additional features.
Surrender charges, new contestability periods, and the loss of existing benefits.
You can surrender your policy, let it lapse, or sell it through a life settlement if you are 65 or older.
