At What Point Should One Discontinue Term Life Insurance?
Term life insurance is a popular way to provide financial protection for your loved ones. However, there may come a time when you no longer need this coverage. Here are some important metrics to consider before discontinuing your term life insurance policy:
Major Financial Obligations
Take a look at any outstanding debts, such as a mortgage or car loan, and evaluate your family’s ability to pay them off without your income in the event of your death. If you still have several years left on your mortgage, reducing your life insurance coverage may be a better option than canceling it altogether. On the other hand, if your mortgage is paid in full or your family’s savings and supplemental income is sufficient to cover these expenses, you may consider canceling your policy.
|Major outstanding debts||Evaluate your family’s ability to pay them off without your income|
|Reduce life insurance coverage||Consider if you have several years left on your mortgage|
|Mortgage is paid in full||You may consider canceling your policy|
It’s also important to consider any future financial obligations, such as college tuition or upcoming weddings. If you’re planning to pay for these expenses, holding onto your insurance policy may be a wise choice.
Even if your family is debt-free and has savings, they may still struggle to pay for daily expenses without your income. Consider whether your partner or spouse can support themselves and your children without your salary. If they can, you may want to consider canceling your policy.
Conversion to Whole Life Insurance
If you’re nearing the end of your term life insurance policy, your agent or insurance company may encourage you to convert to a whole life policy. However, keep in mind that whole life insurance is more expensive than term life, and the rate of return on the investment portion of your insurance premiums is often low. It’s usually better to maintain your current policy and invest the difference in premiums yourself. However, if you have a pre-existing medical condition or anticipate a hefty estate tax bill, whole life insurance may be worth considering.
Overall, it’s important to carefully evaluate your financial situation before discontinuing your term life insurance policy. Make sure your family is protected in the event of your death, both in terms of major financial obligations and everyday expenses.
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* Based on website quote requests, through 5/31/23.
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