I have been searching the internet for good counsel on when to stop paying for life and disability insurance. There is plenty of ink spilled on when and why to buy, but not nearly so much on when to stop buying. My insurance broker, predictably, suggested I wait until I am 65 to discontinue disability insurance. But since disability is to replace income, paying right up to the last minute is nonsensical.
We are in good financial condition, the kids are working their way through college, and retirement is a few years out, but starting to come into focus. I consider myself not particularly risk averse, so taking on a little extra risk (of not being able to work) may make sense in reducing the growing cost of insuring a middle-aged man.
How are others thinking about this? Do you intend to stay insured right up to retirement time, or ease out of it in your late 50s?
BTW, I regularly review and share this helpful Personal Finance Thread link from a few years back. (https://maplewood.worldwebs.com/forums/discussion/id/61721-A-Personal-Finance-Thread). I include it here in case there are others who may find it useful, or perhaps only to remind long-time readers that not everything PB wrote was odious and objectionable.
If the purpose is to replace income in the event of a disability and you have already done so in other ways, such as retirement with pension or other benefits, personal investments, reduction of personal expenses, etc (or a combo), then to my way of thinking, there really isn't a reason to continue, at least not at the same level.
As for stopping your life insurance, that's very dependent upon the reason you have it. I am divorced and have life insurance as part of my divorce decree to cover my portion of raising my children. I would have this anyway, however, and it was nothing new when I got divorced. However once my kids are self-sufficient, there is really no reason for me to maintain life insurance except perhaps to cover the expenses related to my disposition.
However my father, a retired attorney, had a client who took out a $5,000,000 life insurance policy at (I believe) age 80. His annual premiums were over $70,000. However it was a "good" estate management tool, as it lowered the size of his estate and allowed the bulk of his money to flow to his heirs more easily.
If you have dependents who rely on your income, life insurance is valuable until the day after you actually use it. But with no dependents, I think you need to look at whether it's an estate planning tool or just another expense.
I'd be too superstitious to cancel any kind of insurance. With my luck, the day after I cancelled it, something would happen where I'd need it. You never know what's right around the corner that's totally unexpected (my glass isn't half empty -- just personal experience with these kinds of things).
Well, the point is to cancel it when you no longer need it, not just because you think you might not.
For example, if you don't have income, there's no reason to pay for disability insurance, since there's no income to replace. Similarly, if you don't have dependents, there's no reason to pay for life insurance unless you're feeling particularly generous to someone.
Yes, I would stop the disability insurance when you stop working, not before. With the term life insurance, if you have enough to take care of things without it, great. Besides, don't term life policies change value after a certain age? I know my FIL's coverage dropped quite a bit when he passed 70, and he didn't realize that would happen, so that became kind of a thing for that family.
Insurance is all about covering the unexpected. I would never have anticipated needing social security disability, nor would I have believed I would have to quit working at the age of 50 for health reasons, but that's what happened. From where I sit, better safe than sorry. Don't second-guess it so much you are taking risks for yourself and your family. But beyond that, if it doesn't make sense to you, stop.
Thank you all for the comments.
The disability insurance seems to be the easy decision. When I bought it in my 30s, the price covered a disability that might last 30 years. Now that retirement is maybe 10 years or fewer from now, the same price is providing far less coverage, even if it's the same monthly benefit payout.
When I'm a year from retirement, the disability policy premium is essentially a gift to my insurer. Early "retirement" due a disability would require us to live more modestly, but we would still be comfortable. So it seems the time to discontinue disability is rapidly approaching.
We have a few different forms of life insurance - group insurance from work, private term insurance, and a whole-life policy that I have regretted since moments after signing the papers. Reducing the private term insurance seems like a reasonable thing to do in the next few years.
But I'm still troubled by the utter lack of online expert information available on the subject. It would seem that many people would pass through my situation. And I guess that many of them continue those policies beyond the time they provide good value - through inertia or whatever. Certainly the people who sold me the policies seem to think I should keep them for a very long time.
Lots of people keep their insurance for heirs or as an estate management tool. I would talk to your insurer about options for that Whole Life policy so you get the maximum benefit. Is it worth taking the current cash value, for example
We are actually going through reviewing our situation and what do we need. Am surprised there is not some form of how to walk through and think about it given your circumstances. However, we had enough things to needed to deal with that we engaged with a couple advisors. Bottomline, If you do not have income, agree, disability has limited value. However, there should be specifics within the policy to explain how they arrive at determining payment. We got the advice not to bother at this stage with disability from a finl planner. From insurance person, of course suggested a 5 year policy. This based on being 10 years from "standard" retirement age. With insurance person, it was recognizing will not get out enough once this close, can go early SS route. However, It is very much tied to other forms of income /funds and life circumstances. So that is why its not easy how to advise.
As for life insurance, this is really something to get advice about and how it might be worth considering it as part of estate or retirement planning. We are actually getting advice to buy life insurance, and its something I would advise anyone in there 30's and 40's to look at - we are past that, and its still something financially others are saying its worth it, however its very specific as to from what type of company/form you have/buy.
We have found this challenging to work through all the permutations and issues. Further, friends who have been more on top of this along the way because working for themselves, divorce/kids, etc- also state they relook something every year, and found value working with different advisors over time.
Not the straight yes/no answer you might have been looking for...
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