When Should You Stop Paying for Life Insurance?

We’re going to kick it off with Diane’s question. She says, “I’m wondering if I can stop buying into my term life insurance. I’ve only contributed three years, but I’m 65 and healthy. My four adult kids are independent, so there are no dependents, and I aggressively save and invest.”

I thought this was interesting because we always talk about how life insurance is important in most cases, right? But what do you think about this question? This is so great, Diane, and I love the way that you framed it because it already tells me your financial situation.

When we think about life insurance at its basic level, you have to ask, “Okay, what’s the purpose of it? Why do we have life insurance?” Well, it’s so that if we were to die today, there are other human beings dependent on us. Maybe it’s spouses, maybe it’s children, maybe it’s family members—whatever the case may be, someone else is dependent on my income. If I were to pass away today, either my income goes away, and they don’t have money coming in, or I don’t have enough assets built up to provide for the people that depend on me.

So, Diane, you said, “Hey, I’m 65. All of my children are grown. I’m continuing to save.” The question that I would ask is, “Okay, if you were to get hit by the proverbial bus tomorrow, what would the implications of that be?” You might think, “Well, my adult children would inherit this, and my mortgage would be paid off by this, or they’d sell the house.” You need to walk through whether there are enough resources available to provide for the things that you would want to happen when you’re no longer here. Or is there a shortfall? If there’s a shortfall, one of the best, easiest ways to make up for that shortfall is through insurance, right? That’s the way we do it.

Now, Brian, I think it’s interesting. Diane is 65, right? She said she has adult children. But a lot of times when people listen to these questions like, “Hey, I have the same questions as Diane, but I’m not 65 now. I’m not at the end of the journey.” So when I think about life insurance and how much I should buy and when I should get rid of it, how do I think through that? What are the things that I ought to calculate or run numbers on to figure out, “Do I have enough, or do I not need it anymore at all?”

Yeah, I mean the big thing Bo’s hitting on is the timing. What I love about term insurance is you can stack it. I know in my own personal life that when my first child was born, I bought a life insurance policy. My second child was born, I bought another term life insurance. I even reevaluated because at the time, the tables were shifting. Even though I had gotten older, it was cheaper to buy insurance. So you ought to, even if you’re buying more insurance, check your old one. What I liked is that each time I reset, I would go 20 years because that’s how long I felt like for the kids. So as kids were graduating college and other things, maybe you need to do 25 or 30 years. Because I have bought a 30-year term policy before. You’re hoping that you can ladder them so that as they fall off for the needs, you can walk away at some point. And that’s why I’m used to this question. Diane threw me for a loop a little bit. For a lot of people, when we talk about the timing of when products are bought, you see this question when they’re on year 17 of the 20-year term. I’m unsure if Diane’s only three years into this thing. So that means she was sold this at 62. It makes me wonder when she was sold a product where she was already close to financial independence, and the need was less than it should have been because that happens all the time. But I would encourage Diane because I want to make sure I answer the question first. The annual cost of this thing is probably high because I imagine if you bought insurance at 62, it’s probably got a pretty high premium. So that’s going to be something that’s probably squeezing your cash flow. If you don’t need the insurance, the easy answer is to say, “Yeah, just don’t renew it.” However, I want to caution you. There’s a reason you see all these late-night commercials where people will say, “Hey, if you have any existing insurance and you no longer need it, don’t just surrender it because there might be some market value to it.” I think the easy answer is to get rid of it, but getting rid of it might still require a little bit of research to see if there’s not a market value in it. It’s great. For more information, check out our free resources.