Cancel Term Life Insurance?

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Mandrale
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Cancel Term Life Insurance?

Post by Mandrale » Tue Jul 02, 2013 3:25 pm

Hello everyone,

I know that this topic has been posted multiple times, but just looking for a little reassurance from all the wise people on these boards. I am 24 years old and single, but currently sitting with some term life insurance that I pay for on a monthly basis from a company outside of my employer. I currently have the insurance locked in at the lowest possible rates with the company.

Where my confusion comes in is wondering whether or not to cancel this policy. I plan to have a family at some point down the road, though as we all know, we don't know what the future holds for us. I worry that I was influenced to get this insurance as an attempt at some point down the road to convert it.

Do you all see a point to keeping the policy since I do have the lowest rates locked in? Or would I be better off canceling the policy, saving that money each month, and then at some point down the road, when it is necessary, re-applying and risking not being in premier health classification anymore? The face amount is ~15x income, which also may be high at this point as well.

Thanks for all the tips!

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Abe
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Re: Cancel Term Life Insurance?

Post by Abe » Tue Jul 02, 2013 3:32 pm

I am not an insurance expert by any means, but you don't have any dependents. What is the purpose of having life insurance? Term insurance is cheap. If it were me, I would cancel the insurance and save the money. You can always buy term insurance later. Again, I'm no expert.
Slow and steady wins the race.

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G-Money
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Re: Cancel Term Life Insurance?

Post by G-Money » Tue Jul 02, 2013 3:39 pm

Assume you didn't have the policy in place. Would you apply for it now? For as much coverage as you have?

There's risk under either scenario. Keep the policy, and risk flushing premiums down the drain for an insurance policy you have no use for. Cancel the policy, and risk not being able to get the best rates or being uninsurable when you do need it.

Personally, I think paying for something I don't currently need and may never need isn't prudent. But that's me. YMMV.
Don't assume I know what I'm talking about.

BruDude
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Re: Cancel Term Life Insurance?

Post by BruDude » Tue Jul 02, 2013 3:44 pm

Why did you apply for it in the first place? If you're 24 it must be really cheap at Preferred Plus rates even for 30-year term. $1M of 30-year term is about $50/mo at your age, 20-year term is about $35/mo. I'd keep it if you are intent on getting married and having kids in the near future. You can always drop it later if plans change, but you might not be able to get it back if you drop it.

Mandrale
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Re: Cancel Term Life Insurance?

Post by Mandrale » Tue Jul 02, 2013 3:47 pm

BruDude wrote:Why did you apply for it in the first place? If you're 24 it must be really cheap at Preferred Plus rates even for 30-year term. $1M of 30-year term is about $50/mo at your age, 20-year term is about $35/mo. I'd keep it if you are intent on getting married and having kids in the near future. You can always drop it later if plans change, but you might not be able to get it back if you drop it.
I applied for it before with the foreward thinking of eventually I would be getting it (hopefully) so why not just purchase it at a lower price now, and pay less over a life time with it. Or risk becoming non-insurable at a later point in life.

mike127
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Re: Cancel Term Life Insurance?

Post by mike127 » Tue Jul 02, 2013 3:48 pm

I spent a while thinking about term life insurance both before and after I had a family, so recognizing that I'm not an expert by any means here's the way I think about it:

In general, I don't think about insurance as an "asset" or "investment," although a lot of the financial salespeople I've dealt with over the years have tried to persuade me differently. I'm not using insurance to have a "nest egg" left over or to get a windfall (since, obviously, I'll be dead and won't be able to enjoy the windfall). Instead, I'm using it to account for a catastrophic and unexpected event and to be sure that anticipated expenses that I'd otherwise be able to pay for are covered after I die.

Given that framing, I decided not to buy life insurance (above the insurance my employer purchased for me, at no cost to me) before I had a family. I now have a wife and child, and I did decide to purchase life insurance once my daughter was born. In deciding how much to purchase, I was focused mainly on two things: putting my daughter (and any future kids) through college, and providing enough support that my wife could continue to pay for child care and other life expenses until our kid/kids left home.

So I purchased insurance that was enough to cover the expected cost of those items, and only picked a term that was long enough to get past the expected date of our kid/kids finishing college. (The theory being that we'll have our house paid off and won't have child care/education expenses, so no need to plan for a "windfall.")

If I were in your shoes, this would mean that I wouldn't keep my term life insurance policy but would get a new one if/when I had a family that I needed to support if I died early.

One exception, though, and it's a big one: If you think there's any realistic chance that your health might deteriorate significantly between now and when you have a family, your best bet is to keep your existing policy in force. The reason is that if you apply for a new policy later, you'll have to disclose any medical problems you know about and likely will have to undergo a physical. You can't lie (because if you do you risk them cancelling the policy when your beneficiaries try to make a claim) but if you disclose these things they will either not issue the policy or charge more. In contrast, if you keep your existing policy in force, you don't have to go through an underwriting process like this -- and under some policies you can actually increase the benefits of a policy that's already in force without having to re-do underwriting. If you're healthy, this isn't a big deal -- but if you have had any major health issues since you got the policy, it's worth a lot.

Valuethinker
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Re: Cancel Term Life Insurance?

Post by Valuethinker » Tue Jul 02, 2013 3:59 pm

mike127 wrote: One exception, though, and it's a big one: If you think there's any realistic chance that your health might deteriorate significantly between now and when you have a family, your best bet is to keep your existing policy in force. The reason is that if you apply for a new policy later, you'll have to disclose any medical problems you know about and likely will have to undergo a physical. You can't lie (because if you do you risk them cancelling the policy when your beneficiaries try to make a claim) but if you disclose these things they will either not issue the policy or charge more. In contrast, if you keep your existing policy in force, you don't have to go through an underwriting process like this -- and under some policies you can actually increase the benefits of a policy that's already in force without having to re-do underwriting. If you're healthy, this isn't a big deal -- but if you have had any major health issues since you got the policy, it's worth a lot.
This is key.

You don't need life insurance now (OP I mean). You should buy life insurance when you have a need for it.

HOWEVER if there is any condition in your genetic heritage which might lead to deteriorating health OR an intention to take up a danger sport (like skydiving) then it may not be worth cancelling the insurance.

harrychan
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Re: Cancel Term Life Insurance?

Post by harrychan » Tue Jul 02, 2013 5:39 pm

Term life insurance is to protect those around you if you pass away unxpectantly. Are you supporting anyone? How are your family's financial state? You said you will eventually have a family, are you expecting to have one soon? Have a fiance? Any mortgage / school loans? These are some of the things to ask when determining if you need term life insurance and how much.
This is not legal or certified financial advice but you know that already.

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BL
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Re: Cancel Term Life Insurance?

Post by BL » Tue Jul 02, 2013 8:58 pm

Check to see if you can save money by paying annually.

NorCalDad
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Re: Cancel Term Life Insurance?

Post by NorCalDad » Tue Jul 02, 2013 11:18 pm

How long is the term? If it's a standard 20-year term, I don't really see the point since it may be another 8-10 years before you even have dependents, at which point you will need a longer term anyway. If it's longer than 20-year term, you're probably paying a premium for it.

Good points have already been raised. Unless you have some genetic/hereditary risk or other health problems that may disqualify you in the future, I don't see much point.

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Hub
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Re: Cancel Term Life Insurance?

Post by Hub » Wed Jul 03, 2013 12:01 pm

I would probably cancel it, but just curious, how much are you paying for it? Mine is $263 annual for $500,000 20 yr level term and I got it when I was 31 and in the top health category. ING is the insurer.

The "convertible" policies quoted to me by Northwestern Mutual were not level and started out cheaper than the one I have and counted on dividends that are not guaranteed bla bla bla. Just make sure you aren't paying too much either way.

inbox788
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Re: Cancel Term Life Insurance?

Post by inbox788 » Wed Jul 03, 2013 12:15 pm

Mandrale wrote:I currently have the insurance locked in at the lowest possible rates with the company.

Do you all see a point to keeping the policy since I do have the lowest rates locked in?

The face amount is ~15x income,
How much $$$ insurance, how long is the lock? Are you sure the rates remain lowest? Have you compared to others? As income goes up, does the premium? Any limits? $66kx15~$1M!

Mandrale
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Re: Cancel Term Life Insurance?

Post by Mandrale » Wed Jul 03, 2013 12:24 pm

inbox788 wrote:
Mandrale wrote:I currently have the insurance locked in at the lowest possible rates with the company.

Do you all see a point to keeping the policy since I do have the lowest rates locked in?

The face amount is ~15x income,
How much $$$ insurance, how long is the lock? Are you sure the rates remain lowest? Have you compared to others? As income goes up, does the premium? Any limits? $66kx15~$1M!
The face amount is for $900k on a 30 year term policy. The rates are still the lowest they could possibly be because they are locked in from time of application, in which I was rated as the best tier possible. The premium increases over time unless you were to switch to a level premium which would obviously be more expensive out the gate. I currently pay ~$30/mo. for this policy. It is grouped with my DI policy, so it all comes out in one payment.

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Aptenodytes
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Re: Cancel Term Life Insurance?

Post by Aptenodytes » Wed Jul 03, 2013 1:00 pm

Mandrale wrote:
inbox788 wrote:
Mandrale wrote:I currently have the insurance locked in at the lowest possible rates with the company.

Do you all see a point to keeping the policy since I do have the lowest rates locked in?

The face amount is ~15x income,
How much $$$ insurance, how long is the lock? Are you sure the rates remain lowest? Have you compared to others? As income goes up, does the premium? Any limits? $66kx15~$1M!
The face amount is for $900k on a 30 year term policy. The rates are still the lowest they could possibly be because they are locked in from time of application, in which I was rated as the best tier possible. The premium increases over time unless you were to switch to a level premium which would obviously be more expensive out the gate. I currently pay ~$30/mo. for this policy. It is grouped with my DI policy, so it all comes out in one payment.
Seems like a weird set-up.

Normally level premiums are the best buy. Knowing what you pay now, if premiums are scheduled to go up over time, tells you nothing about the merits of hanging on to the policy.

In 30 years you will probably need insurance, but your term will have expired. That means you will need to buy a new term at that time, at a very high rate, or get a new 20- or 30-year term at a more opportune time (e.g. when you have children). At that point it won't make sense to have both policies so you'll cancel the one you have now.

If you expected to start having children very soon I could imagine hanging on to the policy. Otherwise I can't imagine what good it will do for you.

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