Term Life - Time to cancel?

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David Scubadiver
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Term Life - Time to cancel?

Post by David Scubadiver » Sun Nov 05, 2017 3:13 pm

So, I have been paying my premium since 1997 and I have not died yet. This year, the premium comes to $ 2,634.84 and delivers a benefit of $1,142,250.00. Will be turning 50 during the policy year.

I have two young children (4 and 7) but after all of these years spent not dying, I have acquired and reduced my mortgage to $290,000 and have about $2.8 million in the stock market. I have been flirting with idea of retirement, though I will likely continue to work as long as they let me because the money is great, and I enjoy the job.

I feel like I have enough to be "self-insured" at this point. Sure, it would be "nice" for my family to have an additional $1.1 million should pass away, but but if I don't (and, up to this point, I have not), we'd save a bunch of money over the next 21 years (which is when the policy expires).

The main reason I started writing this was because I changed my credit card for payment of the premium and saw that they listed the premium at $9,896.23. I thought that was what I was paying, but I have no idea what that figure represents since the premium without the dividend is only $6,489 and with the dividend is $2635.84. It nearly $10,000 I was pretty sure I was canceling. But then when I saw it was a lot less, I decided I would ask for opinions.
Last edited by David Scubadiver on Mon Nov 06, 2017 9:44 am, edited 1 time in total.

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arcticpineapplecorp.
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Re: Term Life - Time to cancel?

Post by arcticpineapplecorp. » Sun Nov 05, 2017 3:38 pm

The reason to have life insurance is for your dependents who depend on your income to have uninterupted income in the event of your death. If you believe they would be able to support themselves with your other assets, then I suppose the insurance is no longer necessary. However, you mentioned that you have 2.8 million. If this is tax deferred, the amount received would be less than that. Life insurance is not taxable when the receipients receive it so it's after tax, unlike what some of your other assets might be. Just something to consider.

Sounds like you'd be paying $55,314 over the next 21 years ($2634 X 21) if it's level term. You didn't say. I'm assuming the premiums stay the same for the length of the term. But there's some confusion about the payment? You mentioned four different amounts $9896.23, $6489 and $2634.84 and $2635.84, so I'm not sure what's going on with that. Dividends are what's paid to you, not what you'd owe to the insurance company.

If you live beyond 21 years, you lose the money you've paid. It's a sunk cost. But we buy homeowner's insurance and auto insurance and also hope never to use it.

have you checked policygenius.com? You can do an insurance check up to see what you really need:

https://www.policygenius.com/insurance- ... nd-advice/
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TeamArgo
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Re: Term Life - Time to cancel?

Post by TeamArgo » Sun Nov 05, 2017 3:45 pm

I cancelled my term life insurance in the same week I figured I could retire. If I have enough for my wife and I to live on for the rest of our lives, we have enough for her to live on it by herself. No sense in having her grieve in Hawaii or Italy when I am gone. :wink:
"A man hears what he wants to hear, and disregards the rest" -Paul Simon (The Boxer, 1970)

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Sun Nov 05, 2017 3:50 pm

The base premium is higher than what I am paying because of the dividend. But, I can't really say that I understand all of the premium numbers being shown. I only know what gets charged annually to the credit card.

I understand it is tax free and that half our accounts are in tax-deferred and the other are in taxable accounts. There is the piper to be paid from distributions from both of those accounts, for sure. I don't even know if it is level term. I think it is. I am paying a couple hundred bucks more this year than last, but that may be because the dividend was smaller, or the COLA adjustment was higher.

I have not gone to policygenius, but will check them out this week. I like TIAA, but if I can save a significant amount with someone else that is equally well-rated, I would consider switching.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Sun Nov 05, 2017 3:51 pm

TeamArgo wrote:
Sun Nov 05, 2017 3:45 pm
I cancelled my term life insurance in the same week I figured I could retire. If I have enough for my wife and I to live on for the rest of our lives, we have enough for her to live on it by herself. No sense in having her grieve in Hawaii or Italy when I am gone. :wink:
I feel like we are a little short, myself. But with one less mouth to feed if I should go into the dirt early, I think they'd be set!

amarone
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Re: Term Life - Time to cancel?

Post by amarone » Mon Nov 06, 2017 6:20 am

Are you sure this is term life?

http://www.lifeant.com/faq/what-type-of ... dividends/ Whole life insurance is the only type of life insurance that pays policy holders an annual dividend. Term life, variable universal life, and traditional universal life insurance do not pay dividends.

Savio
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Re: Term Life - Time to cancel?

Post by Savio » Mon Nov 06, 2017 6:37 am

You are talking about Whole Life insurance. Term Life is much cheaper, and the payout doesn't change and it doesn't give you a dividend.

2 completely different things.

Better start by just getting acquainted with what Whole Life is and if you want to use it at all. I only use Term Life and I will let it expire once I have enough for my family to survive on.

I don't plan on ever using Whole Life.

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djpeteski
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Re: Term Life - Time to cancel?

Post by djpeteski » Mon Nov 06, 2017 6:42 am

At 50, as a non-smoker but overweight with poor cholesterol I got a .5 million dollar policy for $900, so double that and it is quite a bit less than what you are paying.

If it was me, I'd get a 10 year term policy. Lets assume that your investments are reduced to half due to a market crash and this in turn gives you a heart attack. Would you be comfortable with your heirs having around a 1 mil nest egg to live off of? I am thinking "no" as you are debating with what you have now.

That half mil will give your heirs time to recover from the shock of losing you, and also give them time to recover from any market crashes etc. It is just a nice cushion which will cost you a total of 9K.

Once the 10 years is up you can reevaluate. Lets assume you have a portfolio of like 8 million. I think you can then self insure.

hightower
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Re: Term Life - Time to cancel?

Post by hightower » Mon Nov 06, 2017 6:58 am

David Scubadiver wrote:
Sun Nov 05, 2017 3:13 pm
So, I have been paying my premium since 1997 and I have not died yet. This year, the premium comes to $ 2,634.84 and delivers a benefit of $1,142,250.00. Will be turning 50 during the policy year.

I have two young children but after all of these years spent not dying, I have acquired and reduced my mortgage to $290,000 and have about $2.8 million in the stock market. I have been flirting with idea of retirement, though I will likely continue to work as long as they let me because the money is great, and I enjoy the job.

I feel like I have enough to be "self-insured" at this point. Sure, it would be "nice" for my family to have an additional $1.1 million should pass away, but but if I don't (and, up to this point, I have not), we'd save a bunch of money over the next 21 years (which is when the policy expires).

The main reason I started writing this was because I changed my credit card for payment of the premium and saw that they listed the premium at $9,896.23. I thought that was what I was paying, but I have no idea what that figure represents since the premium without the dividend is only $6,489 and with the dividend is $2635.84. It nearly $10,000 I was pretty sure I was canceling. But then when I saw it was a lot less, I decided I would ask for opinions.
2.8 million seems like enough to leave to your children in my opinion. You're financially independent and all of that wealth would transfer to your family if you passed, so they'd be set for life. An additional 1.1 million insurance policy is completely unnecessary IMO. Good job!

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BL
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Re: Term Life - Time to cancel?

Post by BL » Mon Nov 06, 2017 7:21 am

It sounds like you need to look up or get the exact title of your insurance. As others have commented, term generally does not have dividends at all, and are usually cheaper than yours.

If it is something like a whole life, you have had it 20 years which may mean you have paid the heavy expenses are are near break-even where future may mean some kind of return. The age 71 may even be a paid up date vs. end of insurance, I don't know.

You should be able to get an "in-force illustration" from the company, to get guaranteed values and a better picture of what you have. Here is a link to the White Coat investor's page about evaluating this:
https://www.whitecoatinvestor.com/how-t ... fe-policy/

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Mon Nov 06, 2017 9:12 am

The policy is an annual renewable term policy at TIAA.

ryman554
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Re: Term Life - Time to cancel?

Post by ryman554 » Mon Nov 06, 2017 9:26 am

David Scubadiver wrote:
Mon Nov 06, 2017 9:12 am
The policy is an annual renewable term policy at TIAA.
With a dividend, there is no way is it term, although TIAA does not sell whole life, so I am perplexed at what you actually have.

As a 50 year old, I cannot believe that an annual-renewable term is (significantly) MORE than the cost of a 50 year old getting 10-20 year level-term policy unless you have high risk factors for dying soon.

You should not be having an annual-renewable term policy and expect to hold for more than five years. I'd shop around, particularly if you are in good health.

As for if you should keep it? How young are your kids? I'd vote "no", or only to the point where you need to payoff a mortgage. Don't underestimate the SSDI death benefit for minors. I suspect your family will qualify for ~4k/month (or more) until your oldest gets to be 18. That's almost $50k/year. Combined with over two million in the bank, your family should be more than fine.

technovelist
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Re: Term Life - Time to cancel?

Post by technovelist » Mon Nov 06, 2017 9:38 am

TeamArgo wrote:
Sun Nov 05, 2017 3:45 pm
I cancelled my term life insurance in the same week I figured I could retire. If I have enough for my wife and I to live on for the rest of our lives, we have enough for her to live on it by herself. No sense in having her grieve in Hawaii or Italy when I am gone. :wink:
As long as you aren't counting both Social Security payments (since the lesser one would cease on your death), your analysis is correct.

*Yes, I know this is oversimplified, but it is close enough in most cases.
In theory, theory and practice are identical. In practice, they often differ.

letsgobobby
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Re: Term Life - Time to cancel?

Post by letsgobobby » Mon Nov 06, 2017 9:42 am

something doesn’t add up. have you been paying $2500 per year for twenty years for one million in coverage? that is one reason you are having to second guess the costs - theyre very high. we also do not strictly need my term life any longer, but mine only costs me $750 per year for $1.5 million and i’ve had a few health problems so it’s a no-brainer to keep. expires in my mid to late 50s.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Mon Nov 06, 2017 9:43 am

They offer term and permanent insurance; the dividend is simply used as a credit against the premium.

I think the reason the premium was so high is because coverage was guaranteed until age 70.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Mon Nov 06, 2017 9:49 am

letsgobobby wrote:
Mon Nov 06, 2017 9:42 am
something doesn’t add up. have you been paying $2500 per year for twenty years for one million in coverage? that is one reason you are having to second guess the costs - theyre very high. we also do not strictly need my term life any longer, but mine only costs me $750 per year for $1.5 million and i’ve had a few health problems so it’s a no-brainer to keep. expires in my mid to late 50s.
Actually, the coverage is split between a base and a cost of living increase. I believe the base coverage was 750,000. Every year I have the option to pay the extra for the COLA (I can't recall what that is, but will check when I get home...maybe I will just keep the base coverage and dump the cola as a compromise.

letsgobobby
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Re: Term Life - Time to cancel?

Post by letsgobobby » Mon Nov 06, 2017 10:16 am

Look into that option. Also, I believe some insurers will allow you to lower the amount of coverage thus lowering the premium.

Out of curiosity, why did you pay for guaranteed coverage til age 70? As an attorney it would seem unlikely you would have needed such extended coverage. That is indeed why your premium is so high - maintaining the option to keep insurance into your 60s will drive up the price.

You could also look into applying for a new, shorter term policy for a smaller death beneft - like $500k for 10 years. Or maybe you don’t need anything at all, which was your original question. Our financial situation is in your ballpark and we’ve kept all our policies. Do you have adequate money saved for your kids to go to college, for your SO to live without work for a time, to meet his/her lifetime financial needs (depending on whether she works or not)? There will also be social security benefits. Are you also covered by a policy at work? Lots to think about, but again at $750 per year the price of entry is not high.

Something else for others to consider. My policies are actually stacked. I have a 20 year $500,000 and a 15 year $1,000,000. So they roll off in a logical order as our need for insurance decreases. Each one costs about $375. That’s another reason I’m keeping mine - when the 15 year policy terminates, I’ll still have a $500,000 policy into my late 50s for just a few hundred bucks per year. That’s pretty easy to justify and peace of mind for my family, whatever other assets we have.

soccerrules
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Re: Term Life - Time to cancel?

Post by soccerrules » Mon Nov 06, 2017 10:37 am

Scuba Dave-
I have a Term 70 policy through Northwestern Mutual. I have had it for the last 20+ years while raising kids. I just turned 52 and have noticed the monthly premium starting to rise a little faster each year. My current annual cost (minus dividend) for $1M is about $2400. In 5-6 years the premium will be $3600 and then at 70 would be $15,000+ a year.
I have just completed my medical review and blood work to buy a level term policy and received the 3rd best rating out of 12. Basically great health but overweight. ( :annoyed ). That new $1M policy will cost me $2100/year for 10yr policy, $2800/year for 15 yr and $3700/year for 20 year.

My plan is to continue to carry life insurance until I retire and essentially I no longer need to replace my income. That should be about 8-9 years.

I will probably get the 15 year $1M policy and then consider reducing the death benefit to 500K or less through the end of the 15 year term. I can always drop it completely, or carry a smaller amount to give the kids "a gift", instead of them having to wait on both of us to pass.

with younger kids -- i would probably continue to carry life insurance on myself and my wife until they were at least in MS and more self sufficient. It's cheap and just makes things a little easier if something bad happens. You can always cancel it.
Don't let your outflow exceed your income or your upkeep will be your downfall.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Mon Nov 06, 2017 11:13 am

letsgobobby wrote:
Mon Nov 06, 2017 10:16 am
Out of curiosity, why did you pay for guaranteed coverage til age 70? As an attorney it would seem unlikely you would have needed such extended coverage. That is indeed why your premium is so high - maintaining the option to keep insurance into your 60s will drive up the price.
I honestly have no memory of anything other than being stuck with a needle for a blood sample. Maybe I had no idea what kind of insurance I would need as I got older and just figured I could cancel if it got too expensive.

bloom2708
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Re: Term Life - Time to cancel?

Post by bloom2708 » Mon Nov 06, 2017 11:17 am

OP, does your employer offer Term coverage?

Maybe consider dropping down to $500k. With close to $3 million in investments, you can afford it, but I don't think it necessary where you are at financially.

I get 10x my salary for a very small amount. Our term is in a 10/20/30 ladder and they will drop off as we age and no longer need the term.
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DaftInvestor
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Re: Term Life - Time to cancel?

Post by DaftInvestor » Mon Nov 06, 2017 11:22 am

Whether or not it is considered Term-Life or Whole-Life or Universal it sounds like you have an expensive and complicated product.
I bought Term Life - fixed coverage over the Term and fixed yearly payments over the term - simple to understand and cost effective for what I need.

I think you should figure out how much insurance you still need (if any) and buy a "simple" Term Life policy to cover it.

Jack FFR1846
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Re: Term Life - Time to cancel?

Post by Jack FFR1846 » Mon Nov 06, 2017 11:27 am

It's possible that you have something that's not term life insurance alone and not whole life. I had a policy that my dad bought for me and paid the premium for 20+ years. When I finally got an in force illustration, I found that I had a term universal life policy and the illustration showed that if I paid the premium every year going forward that the cash value went down every year and eventually, the death benefit went to zero. I cashed it out. I'm in a similar boat with over $2MM and no need for life insurance.
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Chadnudj
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Re: Term Life - Time to cancel?

Post by Chadnudj » Mon Nov 06, 2017 11:33 am

Just jumping in to note: I have term life insurance through Northwestern Mutual up to age 80. The policy does have "dividends" that get used to reduce my monthly premiums. (As does my disability insurance, FWIW.) It's still term insurance, though.

My two cents: keep the insurance. Yes, it may never pay out....but if you die while the policy is in force and it DOES pay out, the return on investment will be very much worth it for your heirs. That $2k or whatever a year you're paying isn't keeping you from meeting all of your other financial goals (and wouldn't meaningfully impact your ability to reach your financial goals sooner), so chalk it up as extra security/windfall for your heirs if you die early. I'm far from early retirement myself (and have two kids under 3), so I'm obviously not cancelling my life insurance anytime soon...but even when I do achieve financial independence, I plan on keeping the life insurance all the way (especially since my dad didn't make it to 80, and my mom has health issues that make it unlikely she'll make it to 80), and the disability policy as long as I continue to work (once I stop working, no sense keeping that one).

ivk5
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Re: Term Life - Time to cancel?

Post by ivk5 » Tue Nov 07, 2017 3:22 pm

Shouldn't be thinking of insurance as an investment...

Annual renewable term like the OP and Chadnudj have strike me as a poor choice for most people. Every year the benefit gets smaller in real terms (inflation) but the premium increases, sometimes steeply. Moreover the guaranteed premiums may become astronomical compared to the "scheduled" premiums; you may get the scheduled premiums for a while but there may be surprises, for example under unexpected economic conditions (which may be the worst time for surprises).

Level premium term makes much more sense to me, even though the "level" premium effectively front-loads more of the cost, since many people with a real need for life insurance can also anticipate when it will no longer be needed (kids out of school and/or house paid off etc). Even erring on the side of caution and taking a somewhat longer term than may be needed, and even letting the policy lapse in latter years if there is no longer a need, you may find you come out ahead with level term. It pays to run the numbers.

I found that a NWM T80 policy at age 30 would have initial premium similar to 20y term for same benefit amount. If memory serves, breakeven point vs 30y term was around 13y, though I don't have the figures handy. Obviously details will vary a lot depending on age, health rating, etc.

With annual renewable, you're paying a premium for the contractual right to continue the policy without medical underwriting far beyond when most people have an insurable need (and possibly for the "privilege" of convertability to whole life / permanent insurance, which is only really appropriate in very narrow circumstances like potential surviving dependent with special needs, large illiquid asset subject to estate tax like family business/farm, etc).

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Wed Nov 08, 2017 10:22 am

ivk5 wrote:
Tue Nov 07, 2017 3:22 pm
Shouldn't be thinking of insurance as an investment...

Annual renewable term like the OP and Chadnudj have strike me as a poor choice for most people. Every year the benefit gets smaller in real terms (inflation) but the premium increases, sometimes steeply.
Actually, with the COLA portion of the policy, I am keeping up with inflation. So while the premiums go up, so has the coverage.

DrGoogle2017
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Re: Term Life - Time to cancel?

Post by DrGoogle2017 » Wed Nov 08, 2017 10:31 am

I still have life insurance and my kids are all grown up. Right now it’s about 1.5M, I might lower it down when I’m 60. Premium still not too high.

sco
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Re: Term Life - Time to cancel?

Post by sco » Wed Nov 08, 2017 11:03 pm

That certainly isn't Term insurance, you've paid a lot over the years for that Dividend "discount" on a rather inflated rate.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Thu Nov 09, 2017 6:27 am

sco wrote:
Wed Nov 08, 2017 11:03 pm
That certainly isn't Term insurance, you've paid a lot over the years for that Dividend "discount" on a rather inflated rate.
It is renewable term. When I started, it was $642 a year for $767,000 of coverage.

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djpeteski
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Re: Term Life - Time to cancel?

Post by djpeteski » Thu Nov 09, 2017 7:09 am

One thing to keep in mind, that given your user name, you will likely receive a higher rate on a new policy. I am unsure how much more it cost scuba divers for life insurance, but parachutist and private pilots also suffer from higher rates.

I knew I wanted to be certified, so I bought what is hopefully my final life insurance policy before taking my OW cert.

jlcnuke
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Re: Term Life - Time to cancel?

Post by jlcnuke » Thu Nov 09, 2017 7:59 am

$2.8M, assuming an effective tax rate of 35%, would still leave $1,820,000 for your heirs.

Assuming they needed to be taken care of for 14 years (until your youngest turns 18), that would give them about $130,000/year.

Can your family not "get by" without you on $130k/year? If they can't, then you still need life insurance.
If they can, then there's no "necessary" reason to pay someone else to provide the insurance you've already established for your family.

Personally, unless there are some major extenuating circumstances (massively high COL for instance), I can't imagine that you don't have enough to just be self-insured.

David Scubadiver
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Re: Term Life - Time to cancel?

Post by David Scubadiver » Thu Nov 09, 2017 8:14 am

How do you come to the $130,000 figure? The way I figured it, if $1M in coverage when I had nothing, was enough then all other things being equal one should not need the coverage when they have accumulated $1M.

Of course it is in the market so it won’t always be worth $1M. And, I had no kids when I purchased. So all is not equal.

ryman554
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Re: Term Life - Time to cancel?

Post by ryman554 » Thu Nov 09, 2017 9:40 am

David Scubadiver wrote:
Thu Nov 09, 2017 8:14 am
How do you come to the $130,000 figure? The way I figured it, if $1M in coverage when I had nothing, was enough then all other things being equal one should not need the coverage when they have accumulated $1M.

Of course it is in the market so it won’t always be worth $1M. And, I had no kids when I purchased. So all is not equal.
In the event of death, what are the annual expenses today needed to maintain your quality of life?
What are the annual expenses today needed to maintain a minimal quality of life?
Given you 2.8M, what % has not yet been taxed?
Do you have any "special expenses" coming up in the near future that you know about?

Answer that, you probably did before, I'm too lazy to go look, we can tell you quickly.

goGators
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Re: Term Life - Time to cancel?

Post by goGators » Thu Nov 09, 2017 10:03 am

OP, We asked a similar question earlier this year, viewtopic.php?f=2&t=207463&p=3182595#p3181172
After reading the responses, we decided to keep them.

sco
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Re: Term Life - Time to cancel?

Post by sco » Thu Nov 09, 2017 10:53 am

David Scubadiver wrote:
Thu Nov 09, 2017 6:27 am
sco wrote:
Wed Nov 08, 2017 11:03 pm
That certainly isn't Term insurance, you've paid a lot over the years for that Dividend "discount" on a rather inflated rate.
It is renewable term. When I started, it was $642 a year for $767,000 of coverage.
If it is really term, I'd shop for a better rate if you determine that you still need the coverage. I wouldn't buy anything with a rider, just buy a long enough term..

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