At what age to drop term life insurance?

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wormtail
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At what age to drop term life insurance?

Post by wormtail »

I'm looking at a $2500 bill for term life insurance for this year. My wife and I both have policies, average age for the two of us is 59. Both in good health. I'm thinking at some age of dumping these policies as each year they are more expensive and our nestegg grows in proportion to the payouts. If you dumped these policies and considered yourself selfinsured, at what age did you do it?
Johm221122
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Re: At what age to drop term life insurance?

Post by Johm221122 »

I would cancel term life insurance when my portfolio could cover my dependents in case of death.By dependents I mean people who depend on my paycheck or income
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Peter Foley
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Re: At what age to drop term life insurance?

Post by Peter Foley »

The reason for having a policy is to provide for someone who depends on you for income. In your case, I would consider dropping the policy if my mortgage were paid off and my spouse could live comfortable on his/her income + savings + SS.

After my kids were grown and on their own I only carried the basic one year of salary that was available for free though work. My wife and I both dropped our life insurance when we retired a couple years ago. I'm 63 and she is 58.

I don't see this so much as an age issue rather as a decision based on one's financial independence.
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nisiprius
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Re: At what age to drop term life insurance?

Post by nisiprius »

Very similar situation to yours. We had five-year renewable term, which I guess is rare nowadays, so there was a jump every five years. I believe it was at just about age 59 that the jump occurred, to something on the order of $2,500-$3,000 a year.

Well, the house had been paid off, the kids were through college, and the total amount in our retirement accounts was more than the death benefit of the insurance policies, and the only reason I could see for renewing the policies was that it had become a habit... I sort of had to remind my wife that the reason for having a term insurance policy is to insure against dying before accumulating an estate and we'd accumulated the estate.

I don't remember the exact sequence, because we actually had a total of five policies: a TIAA term life policy, a TIAA inflation adjustment rider which actually was a separate policy, a couple of SBLI policies, and an absolutely wonderful Wisconsin State Life Fund policy which was only for $10,000 but cost almost nothing--we only paid the premium every three or four years because it was a participating policy and the dividends usually covered the premium--well anyway. We sort of cancelled them in stages and chunks.
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interplanetjanet
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Re: At what age to drop term life insurance?

Post by interplanetjanet »

I'd like to chime in agreeing with the other posters here. If your assets can cover the loss of your future earnings (or non-joint pensions) then the insurance has probably outlived its usefulness.

My own situation is different but I'm looking at dropping my life insurance by around age 40. I'm a single parent and my assets have risen to the point where I expect they could cover raising my children through college (they're teenagers now) - since I don't have anyone else to support but them, it makes things easier. If I find another spouse at this point in my life I'd expect them to be self-supporting. So...take a hard look at what risks you *need* to cover. Risks that you can handle otherwise generally don't call for insurance.
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wormtail
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Re: At what age to drop term life insurance?

Post by wormtail »

Thanks for the responses. I've got 3 more years to work and am strongly considering dumping the policies at that time. Another good reason to retire at that time. We would suddenly reduce our retirement expenses by $3000 per year or so.
curmudgeon
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Re: At what age to drop term life insurance?

Post by curmudgeon »

I dropped my individual term policy at around age 50. The kids were through college, and our assets had built up substantially. I still have some coverage through my work, but that's not something that I feel a need to replace or carry forward in early retirement.
Bill M
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Re: At what age to drop term life insurance?

Post by Bill M »

Technical and logical answers already given above. But you don't want to become the example insurance agents will use for decades -- the person who cancelled their insurance and got hit by a truck the next day. My wife calls this the karma effect, and you need to appease the karma gods. Strategies differ on dealing with this. Mine is to conveniently "misaddress" the envelope with the renewal payment (like swap the to and from addresses).
carolinaman
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Re: At what age to drop term life insurance?

Post by carolinaman »

I had a 15 year term policy with fixed annual premium that covered me through age 66. At that time the policy for $150k would increase from $500 per year to around $4000. I could self insure by then and canceled the policy. I actually could have self insured earlier, but at $500 a year it seemed like a good deal.
John Z
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Re: At what age to drop term life insurance?

Post by John Z »

We had term to 70 but each year the premiums increased. What we did once the premiums got too high is we reduced the coverage by half thereby decreasing payments by half. Check it out.
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SnapShots
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Re: At what age to drop term life insurance?

Post by SnapShots »

Bill M wrote:Technical and logical answers already given above. But you don't want to become the example insurance agents will use for decades -- the person who cancelled their insurance and got hit by a truck the next day. My wife calls this the karma effect, and you need to appease the karma gods. Strategies differ on dealing with this. Mine is to conveniently "misaddress" the envelope with the renewal payment (like swap the to and from addresses).
LOL!!! My husband turned 70 and the premium for his term insurance of $240K went from $2K/yr to $4K. Originally it was a $500K policy. It's a policy we just automatically renewed without thinking. Although, I would be OK without it, it made me nervous to give it up. We decided to drop it.

The next month my husband's PSA test for prostate cancer was higher than last year and a few weeks later he was in the ER requiring emergency gallbladder surgery. Doctors said, we were concerned he wasn't going to make it. He did make it and is a retired physician, who was trying to self-diagnose and waited a bit too long. He's doing great, but while sitting in the hospital I thought about the Karama Effect. :?

I have two $250K polices. They've been so cheap I've kept them but now I have hit a new band and the rate has gone up. Took out the second $250K policy when I was 60, which was $800/yr because we were taking care of my mother and I worried about her care and it's cost if something happened to me. One policy is still pretty cheap, $700/yr. The other is about double. Probably should drop one now and the other one later.
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Re: At what age to drop term life insurance?

Post by goodenyou »

I agree term insurance should be dropped when the people who depend on you no longer would need the the proceeds of the life insurance in the case of your demise. It is imperative to not prolong long term debt and amass a portfolio that gives you this option as you age. If you develop a life threatening illness while you are covered in a term plan, it will be an all out race to get to that point. The problem with term life and disability, for that matter, is that it is for the young. It is not for the old, sick, in debt and possibly uninsurable. Many don't realize disability policies end at 65, and it will be a sad state of affairs if you have only SS to live on at that point. Buy a term policy with the idea of how long it would take to reach those goals. If you bought a long-term plan and you get sick, you will be glad you did.
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nisiprius
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Re: At what age to drop term life insurance?

Post by nisiprius »

Bill M wrote:Technical and logical answers already given above. But you don't want to become the example insurance agents will use for decades -- the person who cancelled their insurance and got hit by a truck the next day. My wife calls this the karma effect, and you need to appease the karma gods. Strategies differ on dealing with this. Mine is to conveniently "misaddress" the envelope with the renewal payment (like swap the to and from addresses).
The tough-minded answer is, "if my wife is going to be OK without the money from the death benefit, then what's wrong with being hit by a truck? It's not supposed to be a lottery ticket that costs $3,000 a year, it's supposed to be a financial product to meet a need."

My wife was involved in the decisions to cancel. Of course. And she is reasonably frugal. We held on to the policies maybe a year or two longer than I thought was strictly necessary, but the money was coming out of "our" joint pocket, and she was well aware of it.

But you'll notice I said we had several term policies, and cancelled them at different times. I'm not sure about all the ins and outs of what you can and can't do with a policy, but I think there's some mild benefit to multiple policies in giving you flexibility in cancellation. Logically, your need for term insurance decreases over time as the needs it is intended to meet decrease, but it doesn't stop all at once.

This makes it sound as if we were more rational than we actually were, but, hey.

Having multiple policies also may improve the situation with regard to risk of insurer insolvency. Anyone who hasn't done so already should go to
http://www.nolhga.com (careful, watch out for typosquatters. The order is L for life, then H for health, and it's a dot-COM)
Then "State associations click here"
"Choose your state association"
Go
FAQs

Look for questions like "Are all policies fully protected?" and the surrounding questions.

If you don't know what a state guaranty association is, you're in good company. Some of the insurance agents on this site say that they give all their clients a brochure about it, but that must vary from state to state.
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Watty
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Re: At what age to drop term life insurance?

Post by Watty »

You might want to get a very good physical before you decide to drop it. Be sure to ask your doctor about what tests he or she would reccomend even if your insurance might not cover them.
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goodenyou
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Re: At what age to drop term life insurance?

Post by goodenyou »

Watty wrote:You might want to get a very good physical before you decide to drop it. Be sure to ask your doctor about what tests he or she would reccomend even if your insurance might not cover them.
That is a good idea, but your doctor doesn't have a crystal ball test that will predict sickness in the future. A lot of illnesses come on suddenly without warning.
Greenie
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Re: At what age to drop term life insurance?

Post by Greenie »

I would love to get opinions on my situation. I have the assets to cover my eight year younger wife. I am 66 and my 20 year term life policy runs out or should I say increases astronomically in August 2020 and I have no plans to keep beyond 08/2020. I pay $1248.00 a year ($104 a month) for $500K of coverage. Two years and eight months remaining, and I am healthy and I paid for the younger years when I was less of a risk to the insurance company. Thoughts?
chevca
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Re: At what age to drop term life insurance?

Post by chevca »

You could have started your own thread rather than dig up a 3 year old thread.

But, if you have enough assets and no one really depends on your income, I don't think you need life insurance. IMO. You also didn't mention social security... are you retired and collecting now, would the wife collect if you pass? Sounds like she would be fine though.
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Re: At what age to drop term life insurance?

Post by MikeG62 »

Greenie wrote: Tue Nov 21, 2017 1:12 pm I would love to get opinions on my situation. I have the assets to cover my eight year younger wife. I am 66 and my 20 year term life policy runs out or should I say increases astronomically in August 2020 and I have no plans to keep beyond 08/2020. I pay $1248.00 a year ($104 a month) for $500K of coverage. Two years and eight months remaining, and I am healthy and I paid for the younger years when I was less of a risk to the insurance company. Thoughts?
As others have said, once you have enough assets (and/or sufficient sources of retirement income) such that anyone who depends on you will carry on just fine without you, there is no need for term life insurance.

To your question, I dropped mine when I turned 50 (5 years ago) as my premiums increased quite a bit on my 50th birthday. I probably could have dropped it many years earlier, but the premiums were so low (~$50 per year per $100,000 in coverage) that it was just not on my radar screen. Turning 50 caused the premiums to way more than double as I recall. So I dropped it.

This year I dropped my wife's life insurance, for a similar reason - premium went up enough that I thought about it for one minute and decided it was not needed.
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remomnyc
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Re: At what age to drop term life insurance?

Post by remomnyc »

Greenie, I would let your wife decide. We have 8 years left on our term insurance. The premium on my $1M policy is $500/year, and my husband decided the price is so low he wants to keep it to maturity even though we no longer need it.
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Re: At what age to drop term life insurance?

Post by Caduceus »

I think there are two ways of thinking about this.

The first is needs-based. So you would drop term life if your dependents no longer needed that protection in the event of your death. People define that differently. Some folks just want to make sure they have enough that would pay for their children to finish college and their spouse to be independently retired if they passed on. Some want to make sure their family can live happily ever after.

The second is probability-based. You can evaluate the odds of the policy going in your favor. If you are in bad health, likely to have a worse-than-average life expectancy, have a family history of illnesses, etc., you can actually compare the net present value every year of the cumulative costs of term life insurance weighted against the probability of your dying every year in the future. The odds are considerably better than a lottery ticket and your family might reap the benefits if your assessment of that probability is correct.
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Re: At what age to drop term life insurance?

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Benton Bair
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Re: At what age to drop term life insurance?

Post by Benton Bair »

Why not use a small percentage of your accumulated wealth to make installment payments on a guaranteed bond maturing at death? All contracts are for a term - from now until then, whenever that time arrives and it will arrive. Use OPM like we do for so many other things in life.
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