At age 66, should let my $1MM life insurance policy lapse?

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Small Law Survivor
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At age 66, should let my $1MM life insurance policy lapse?

Post by Small Law Survivor » Wed Aug 23, 2017 12:30 pm

I purchased a 20 year, $1 million term policy when I was 49. Annual cost: $2,500.

I'm 66, and the annual premium for the next year will be due in September. I could continue to pay these annual premiums until I am 69. However, every year (for the last few years) I debate whether to let the policy lapse, and every year I get closer to "yes". This year I am more inclined to do it than ever.

My health is very good - no heart disease, stroke, cancer issues. Normal weight, good blood pressure, exercise, don't smoke. Mother and father lived to 93/90. Grandparents and uncles similar ages.

If I died family could live well on savings/investments (25x expenses now, without social security). Of course they could use an additional $1MM, but they wouldn't suffer without it.

I realize I could die from any number of causes at any time, but I have to assess the risk I'll die in the next three years as low.

$2,500/year for this policy seems like a lot of money to me, and I keep thinking it's money poorly spent.

Any thoughts or observations on this situation that would help me decide would be greatly appreciated.

Small Law Survivor
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

Dottie57
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Dottie57 » Wed Aug 23, 2017 12:32 pm

If you don't need the life insurance to pay the bills of those who depend on you for income, drop the policy.
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alfaspider
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by alfaspider » Wed Aug 23, 2017 12:33 pm

If you have 25x expenses already, I don't see the point of life insurance.

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SanityCheck
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by SanityCheck » Wed Aug 23, 2017 12:34 pm

Are you still "working" and is anyone dependent on your monthly paycheck ?

Arthur Digby Sellers
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Arthur Digby Sellers » Wed Aug 23, 2017 12:51 pm

I agree with the other responses saying that it sounds like you don't *need* the insurance at this point.

Just to play devil's advocate, though, I'll point out that you are probably getting a "good deal" on the last three years of your term policy. You paid your premiums in the early years of the policy when you were younger (and therefore less likely to pass away) and the odds were greatly in the insurance company's favor. Now that you are older, the odds likely more in your favor, and you may want to consider keeping the policy because it likely has a positive expected value for your heirs.

As a point of reference, the Social Security Administration's actuarial life tables indicate that a person who lives to the age of 66 has a 1.6986% chance of passing away before the age of 67 (sorry to be morbid, but death is a topic that is hard to avoid in a discussion of life insurance). It sounds like you are probably healthier than the typical 66-year-old, so your expected percentage is likely lower, maybe significantly lower. But the "break even" point at which the insurance policy would be fairly priced for you is a 0.25% chance of not making it to age 67 ($2,500 premium divided by $1,000,000 benefit). In other words, unless your chances of perishing in the upcoming year seven times lower than your cohort, keeping the policy is a "good deal" in terms of expected value.

All that being said, I don't think it would be a mistake to let the policy lapse. After all, your family is taken care of, which is the purpose of life insurance. And even if you kept the policy and "won" your bet against the insurance company, you would not be around to enjoy the proceeds!

jodydavis
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by jodydavis » Wed Aug 23, 2017 1:05 pm

I agree with the previous post. From a purely financial perspective, it makes sense to keep it since the expected value of the policy is currently positive.

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Pajamas
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Pajamas » Wed Aug 23, 2017 1:11 pm

How important is the $7,500 for the premium for the next three years to you?

Would you go out and buy a three year term policy with the same conditions right now if you didn't already have one?

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flamesabers
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by flamesabers » Wed Aug 23, 2017 1:39 pm

OP,

Are the reasons why you bought the life insurance policy when you were 49 still relevant for you? If so, I would suggest you keep paying the premiums. If not, let the policy lapse.

While leaving your family an extra million when you die might sound like a nice thought, it's important to remember the real reason to hold life insurance. Life insurance should be bought to insure against financial catastrophe for the surviving family members, not as a means to make your family instant millionaires.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by BruDude » Wed Aug 23, 2017 2:05 pm

Doesn't sound like you need it, but as of now it is a "good deal" compared to what a $1M policy would cost you today which would be 2-4x the price depending on your health. You never know what happens....if $7500 (the remaining 3 years of premiums) won't make or break you, I'd be inclined to keep it as a gift to the family in the event that something unexpected happens.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by letsgobobby » Wed Aug 23, 2017 2:08 pm

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afan
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by afan » Wed Aug 23, 2017 2:15 pm

Just pointing out that 25x expenses is, I assume, for two people. If you were to die, family expenses likely would go down. So your family would need less money. You probably have more than enough for them to be secure if you were to die prematurely.


But if I were you I would probably keep it, figuring it is a relatively inexpensive bit of financial security. Of course, if there is any stress in covering the premium, then let it go.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

John Z
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by John Z » Wed Aug 23, 2017 2:16 pm

I was in a similar position several years ago and what I did for the last 3 years was (Northwestern term policy) reduce my coverage by half and the premiums followed so at least I had some coverage for the last 3 years. I thought this was a good way to stay covered for less money.

RudyS
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by RudyS » Wed Aug 23, 2017 3:44 pm

Do you itemize deductions? Would you consider transferring the policy to a favorite charity, and take the deduction (I assume that'd work)? You are still out some money, but less, and you are doing something for someone else. I have no idea what other "charitable" actions you take.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by JohnFiscal » Wed Aug 23, 2017 3:56 pm

I obtained a new term life policy a few years ago, probably when I was 62. I had one 10 year term that was to expire the following year. In researching my retirement needs/planning I found that my biggest risk or problem was my dying early rather than living a long life. My wife is 11 years younger than I am, so my dying early could leave her with some years without Social Security. Based on my number crunching I elected to get a 10 year term with lower coverage than I'd had (in my case, I went to $250K). My wife always tells me to drop the coverage but I know better about this than she does...I have run the numbers.

For the OP, it's only 3 more years for a relatively small amount for the premium so I would probably do it.

bberris
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by bberris » Wed Aug 23, 2017 4:08 pm

Keep the policy even if you don't need it.

Here's the math on your policy. A man aged 66, your chance of dying in the next year is 0.016986 (Social security table). The expected value is 1,000,000 x 0.016986 = 16,986, or 6.8 x your premium. If you really don't want the policy, you may be able to sell it or donate it.

This is the math behind level term, very profitable for the insurance company at the start, and a very good deal for insured near the end. I guess the insurance companies know that many insureds let their policy lapse (because they no longer need it) when it is a money losing proposition for the insurance company.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Samy » Wed Aug 23, 2017 4:17 pm

I am in a little different situation.

I have a whole life policy. Cash value today is about 1/3 of face value. I am planing to retire next year. When I do I will receive a pension that should be OK to cover living expenses for me and wife.

I am debating if I should keep the policy or cash it in?

J295
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by J295 » Wed Aug 23, 2017 6:17 pm

Interesting posts on expected value/math. Thanks.

I wasn't that sophisticated .... I have $600k of term with a modest premium which terms out from the fixed guaranteed premium in a few years. I had my former firm deduct the premiums from my monthly buyout payments so I don't "miss" the money. I'm 58 and have been "retired" for 5 years. And although we have "enough" and plan to leave funds for kids/grand kids, my simple thought was if I pass then I'm glad spouse has an extra $600k and the premium payments are a non-issue for us. I had cancer 5 years ago and family history of heart disease, so I guess there's that too.

blueman457
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by blueman457 » Wed Aug 23, 2017 6:21 pm

Arthur Digby Sellers wrote:
Wed Aug 23, 2017 12:51 pm
I agree with the other responses saying that it sounds like you don't *need* the insurance at this point.

Just to play devil's advocate, though, I'll point out that you are probably getting a "good deal" on the last three years of your term policy. You paid your premiums in the early years of the policy when you were younger (and therefore less likely to pass away) and the odds were greatly in the insurance company's favor. Now that you are older, the odds likely more in your favor, and you may want to consider keeping the policy because it likely has a positive expected value for your heirs.

As a point of reference, the Social Security Administration's actuarial life tables indicate that a person who lives to the age of 66 has a 1.6986% chance of passing away before the age of 67 (sorry to be morbid, but death is a topic that is hard to avoid in a discussion of life insurance). It sounds like you are probably healthier than the typical 66-year-old, so your expected percentage is likely lower, maybe significantly lower. But the "break even" point at which the insurance policy would be fairly priced for you is a 0.25% chance of not making it to age 67 ($2,500 premium divided by $1,000,000 benefit). In other words, unless your chances of perishing in the upcoming year seven times lower than your cohort, keeping the policy is a "good deal" in terms of expected value.

All that being said, I don't think it would be a mistake to let the policy lapse. After all, your family is taken care of, which is the purpose of life insurance. And even if you kept the policy and "won" your bet against the insurance company, you would not be around to enjoy the proceeds!
Agree with the statistics.

inbox788
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by inbox788 » Thu Aug 24, 2017 1:12 am

blueman457 wrote:
Wed Aug 23, 2017 6:21 pm
Arthur Digby Sellers wrote:
Wed Aug 23, 2017 12:51 pm
I agree with the other responses saying that it sounds like you don't *need* the insurance at this point.

Just to play devil's advocate, though, I'll point out that you are probably getting a "good deal" on the last three years of your term policy. You paid your premiums in the early years of the policy when you were younger (and therefore less likely to pass away) and the odds were greatly in the insurance company's favor. Now that you are older, the odds likely more in your favor, and you may want to consider keeping the policy because it likely has a positive expected value for your heirs.

As a point of reference, the Social Security Administration's actuarial life tables indicate that a person who lives to the age of 66 has a 1.6986% chance of passing away before the age of 67 (sorry to be morbid, but death is a topic that is hard to avoid in a discussion of life insurance). It sounds like you are probably healthier than the typical 66-year-old, so your expected percentage is likely lower, maybe significantly lower. But the "break even" point at which the insurance policy would be fairly priced for you is a 0.25% chance of not making it to age 67 ($2,500 premium divided by $1,000,000 benefit). In other words, unless your chances of perishing in the upcoming year seven times lower than your cohort, keeping the policy is a "good deal" in terms of expected value.

All that being said, I don't think it would be a mistake to let the policy lapse. After all, your family is taken care of, which is the purpose of life insurance. And even if you kept the policy and "won" your bet against the insurance company, you would not be around to enjoy the proceeds!
Agree with the statistics.
It's not so simple. OP knows he's in good health so his odds aren't as good (or bad depending on whether you're looking at collecting the payout or surviving). A better measure is what someone above mentioned, which is the policy today would cost 2-4X. I went to get 5 or 10 year term at a couple of instant quote sites and got $5000/year assuming OP can pass the health test (and this includes profit, overhead and risk management costs for the insurance company). So the current policy a good deal at 2X, but not screaming buy at 7X based on overall odds. Fortunately for OP, many of those deaths are likely ill individuals, which is not the pool he appears to be in.

I'd drop it and take a vacation.

Carl53
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Carl53 » Thu Aug 24, 2017 4:51 am

I bought a 300k-15 year term policy in my late 50s to offset the potential reduction in pension payments (50% spousal) should I die early. Was it absolutely necessary, no but it made me feel better. I had developed detailed spreadsheet analyses for many scenarios and determined that my dying early was the weakest. It still is the weakest, but I'm comfortable with how things are. I still am able to get a cadillac health insurance for now and wonder every month if it will be dropped by my former bankrupt employer. Not too big a deal for me since I am approaching Medicare age but my spouse is several years younger but has several expensive health care requirements. If necessary, having extra cash for her health care payments and not being forced to dip into the IRAs early was my goal.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by cadreamer2015 » Thu Aug 24, 2017 6:22 am

I have been keeping my 10 year level term life insurance policy for the past 2 years even though I'm largely retired for 2 reasons:

1) The expected value calculation as above
2) Thinking that my wife would be PO'd at me for dropping the policy should I do so and die. Her potential gratitude outweighs the minimal pain of the annual $1,100 premium.

That said I will not be upset if I live past the expiration of my term policy next January. Maybe I'll spend the $1,100 on something fun for the two of us.....
De gustibus non est disputandum

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by The Wizard » Thu Aug 24, 2017 6:41 am

I discontinued life insurance in my late 40s due to sufficient assets at that point in time...
Attempted new signature...

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Small Law Survivor
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Small Law Survivor » Thu Aug 24, 2017 7:01 am

Hmmm ... thank you for the "expected value" analysis of this decision. That hadn't occurred to me, and as an economics major in college, it appeals to me. I haven't decided (and I probably won't until the last minute), but I'm less likely to drop the insurance now than I was before I started this thread.
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

dbltrbl
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by dbltrbl » Thu Aug 24, 2017 7:19 am

Keep the policy for next 3 years than drop it. As others have pointed out peanuts in terms of opportunity and time cost.

Swimmer
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Swimmer » Thu Aug 24, 2017 7:20 am

DH and I faced this decision about 10 years ago. We decided to drop it and invest the premium cost instead. Well, thankfully, he's still going strong and in excellent shape. No regrets. YMMV

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by johnra » Thu Aug 24, 2017 9:23 pm

I bought a $500K term policy at age 58 (6 years ago). It costs $3K per year and is good for 20 years and convertible to whole life during the first 10 years. I plan on keeping for at least 10 years, and then decide.

In your case, I agree with many others--you paid the premium during all those years when odds were in your insurance companies favor. Now with every year, the odds are slowly changing into your family's favor.

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StevieG72
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by StevieG72 » Thu Aug 24, 2017 9:41 pm

Reminds me of the insurance salesmans plug for whole life.

Term only pays if you die.

I plan on checking off the most dangerous activities on my bucket list the year before my policy expires!
Fools think their own way is right, but the wise listen to others.

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flamesabers
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by flamesabers » Thu Aug 24, 2017 10:57 pm

StevieG72 wrote:
Thu Aug 24, 2017 9:41 pm
I plan on checking off the most dangerous activities on my bucket list the year before my policy expires!
Before you do that, I recommend you review any exclusions your life insurance policy might have.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by inbox788 » Fri Aug 25, 2017 12:35 am

flamesabers wrote:
Thu Aug 24, 2017 10:57 pm
StevieG72 wrote:
Thu Aug 24, 2017 9:41 pm
I plan on checking off the most dangerous activities on my bucket list the year before my policy expires!
Before you do that, I recommend you review any exclusions your life insurance policy might have.
Also make sure your disability and long term care plans are well though out. Death is the most feared outcome when engaging in risky behavior, but financially, surviving with a permanent disability may be worse. It's like heart attacks that are often less financially devastating than strokes. Seriously, I doubt anyone chooses their time to take on more risky behavior simply because a life insurance policy is about to expire.

oxothuk
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by oxothuk » Fri Aug 25, 2017 9:23 pm

I'm delaying my SS to age 70 in order to get the 32% bump in SS payments for myself and my wife after I'm gone. I've kept my term life in force until to insure my wife against the possibility of my not making it to 70.

After that, I plan to drop it.

bberris
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by bberris » Sat Aug 26, 2017 6:49 pm

Even in good health, I am not sure I would drop life insurance in the last years of the term.
OP was 66, and his expected value using SS life tables from life insurance was 6.8 x his premium. Even if his chance of dying by disease was 1/5 of the average, adding in accidental death brings a positive expected value.

So I would keep the insurance, and hope for the best, whichever that may be.

petulant
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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by petulant » Sat Aug 26, 2017 7:05 pm

A positive expected value doesn't make something a good purchase. For example, if I already have a TV but a new TV is selling for $2500 along with a .25% chance of winning a million dollars, I still wouldn't buy the TV. The standard deviation of the payout would be too high to be a good money decision. In OP's case, he already has a TV--his family appears to have enough assets should he pass away. I wouldn't keep it.

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Re: At age 66, should let my $1MM life insurance policy lapse?

Post by Ron Scott » Sun Aug 27, 2017 12:13 pm

I will be paying my last $1100 annual installment on my $1M term policy in a couple weeks.

I'm 61. I don't need the $1100 and my heirs don't need the extra million. I am in good health. I swim half and hour a day and ride a bike for 2 hours 2X per week. I could lose about 15 pounds, maybe 20. I drive 10,000 miles per year, commute on a train about once a week and travel by air 4-5 times per year. I'm recently retired. If I were British (I'm a New Yorker) the UbbLE would give me a 3.6% chance of dying in the next 5 years.

I'm going to pay the bill because I think it's a really good deal.

I truly hope my heirs never see a dime of that million...
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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