Author Topic: Kill Life Insurance  (Read 10161 times)

thelamb

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Kill Life Insurance
« on: January 14, 2014, 10:28:07 AM »
Sorry y'all, feel like I'm asking lots of questions.  Recently asked about debt pay down strategy: 
http://www.mrmoneymustache.com/forum/ask-a-mustachian/long-winded-age-old-question-my-personal-debt-versus-investment-situation.  Would love more feedback.  :)

Related to that I'm now looking at my life insurance policy.  I don't fully understand these things, but know it's a $150k policy, perhaps term that grows over time, and currently has a surrender value of $4500.  It costs $60/month, have had it for almost 10 years.  I'm 34, no dependents, would have more than the policy in other assets (almost all liquid, house sale would put way over) if I died tomorrow.  On one hand, the policy seems cheap, at least per month, and maybe it's a good, safe thing to have.  On the other hand, it seems completely unnecessary, especially considering I have no dependents to leave it to.  Plus the surrender could be used to speed up the efforts noted in my previous post. 

I feel like many would say kill it.  But are there good reasons not to?  My agent's main argument is that, should something happen, the value is tax free.  Any other thoughts?  Thanks!

Cromacster

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Re: Kill Life Insurance
« Reply #1 on: January 14, 2014, 10:35:26 AM »
No dependents but are you married?

Why you feel you need life insurance?

Also if you do cash it out 120*60=7200.......>4500 bummer..

SunshineGirl

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Re: Kill Life Insurance
« Reply #2 on: January 14, 2014, 10:35:37 AM »
If it has a surrender value, it's not term, and unless you have anyone you need to provide for, it doesn't seem useful to me. And it's NOT cheap. A 10-year level term for that amount, assuming you're healthy, should cost you $20-40/month.

thelamb

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Re: Kill Life Insurance
« Reply #3 on: January 14, 2014, 10:40:31 AM »
Sweet, quick responses.  Some follow up: 

Not term, okay, I'm ignorant.  :)
No dependents and single. 
The surrender value can be viewed as a bummer but the other the way to look is that the $150k is guaranteed, you know, upon my imminent death, so some could say $7200 in == $154,500 out.  But from a per investment standpoint, you know, while not dead, $7200 in and $4500 out blows. 

Frankies Girl

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Re: Kill Life Insurance
« Reply #4 on: January 14, 2014, 10:45:46 AM »

I feel like many would say kill it.  But are there good reasons not to?  My agent's main argument is that, should something happen, the value is tax free.  Any other thoughts?  Thanks!

And of course the agent has no vested interest in you keeping the policy... ;)

I personally would kill it if I had no one I was worried about supporting, but that's me. Would consider it a life lesson and the money already paid in is sunk cost.

tfordon

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Re: Kill Life Insurance
« Reply #5 on: January 14, 2014, 11:05:19 AM »
Definitely kill it.

Unless somebody is depending on your income, life insurance doesn't make sense to buy.  On top of that, whole life is generally considered a poor way of getting life insurance if you do need it.  You're also giving up the opportunity to invest the $4500 (or pay down debt);  At 7% earnings this is $25/month in opportunity costs.

So you're paying $85/month for something you don't need?  Definitely kill it.  If you do decide you want life insurance, get a simple term plan and pocket the difference in savings.

madage

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Re: Kill Life Insurance
« Reply #6 on: January 14, 2014, 11:55:51 AM »
Kill, kill, kill! The surrender charge is irrelevant. Don't throw good money after bad! My 30-yr term policy has a death benefit several times larger than 150k and I pay less than you ($670/yr)! Echoing others here, you also have no one relying on your income, so life insurance at all is kind of silly.

Apologies for all the exclamation points. I surrendered my universal life policy several years ago, after realizing how much the insurance cost and how much money I was losing.

lackofstache

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Re: Kill Life Insurance
« Reply #7 on: January 14, 2014, 02:12:38 PM »
You've heard the kill its & in your situation I think it makes sense to kill it as well, now, maybe a couple general reasons to possibly keep it...

If you WILL have dependents that will need the $. If you're planning on having kids/partner who will need the money in the future, it may be a good idea to keep some life insurance in place.

I know this one is a fear based/%'s work against you, but...
If you will ever contract/develop a disease that makes obtaining life insurance impossible while also using up much of your $. Cancer, HIV, etc. Once you have these things you can't get insurance even if you need it. Lots of people think I'm silly, but after my wife was diagnosed with cancer I got period pay permanent life insurance on our children. Not becuase we'd need the $ if something happened, but to insure they can get more insurance down the road if they need it.

I keep a term policy on myself because I make most of the money at the moment & I have 3 people who would need the money. The ~$40/mo is worth it to me.

gecko10x

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Re: Kill Life Insurance
« Reply #8 on: January 14, 2014, 02:29:19 PM »
To echo above, kill it.

If/when you want LI, get a term policy. My wife and I are your age, getting good (not the best) rates, and pay less than you for a combined $1M in coverage, 15yr policy.


Edit: added term length
« Last Edit: January 14, 2014, 02:40:39 PM by gecko10x »

MooseOutFront

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Re: Kill Life Insurance
« Reply #9 on: January 14, 2014, 02:31:00 PM »
In your case kill that thing yesterday.  But even if you had dependents, take a look at your Social Security death benefits.  If either my wife or I died the other would get $45k+/yr until the kids were 16.  That has me thinking about lowering the term insurance that I have.

catccc

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Re: Kill Life Insurance
« Reply #10 on: January 14, 2014, 02:35:24 PM »
My 30 year term policy for $500K is $319/yr, about $27/month.  You have some sort of variable or whole life policy there, and I think you should get rid of it.  The only reason I would get rid of it ASAP is if there's a point in the policy during which the surrender value goes up significantly.  I think some of them let you have a lot more back at certain milestones, like 15 years.  Also, have a look at what it is invested in, maybe if it makes sense to hang onto it for a bit, you can do better with different funds?

TrMama

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Re: Kill Life Insurance
« Reply #11 on: January 14, 2014, 02:48:48 PM »
If you plan to get married and/or have kids at some point then I would do the following:

1. Get a term policy now. Basically just to make sure you can get a term policy and because the rates for these increase with age.

2. Then kill it after the term policy is in place.

The reason is that some medical conditions can make you uninsurable. Also, as we get older doctors tend to look harder for things that are wrong with us. Of course, since they're looking, they inevitably find some.

If you never plan to get married or have kids, skip right to step 2.

Cheddar Stacker

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Re: Kill Life Insurance
« Reply #12 on: January 14, 2014, 03:17:04 PM »
Kill it right now. Don't worry about cash surrender value going up. Don't worry about "if you plan to have dependents in the future". You said yourself your other assets exceed the $150K benefit already. They will continue to increase if you continue to save, and they will be adequate to leave to any potential future heirs.

I'm considering the "cutoff point" myself. I have $800K in term insurance on me (the main breadwinner), and $300K on my wife, and we have 2 young kids. My question is, when does this become unnecessary to keep paying premiums on (maybe $600/yr)?

Should we scale it back a bit once our net worth exceeds the coverages we've set for each other? I mean, the whole purpose is to ensure your "dependents" are provided for financially if one/both of you dies. If your 401K plan and other investments will do that anyway, when do you consider it prudent to drop the safety net?

I don't know the exact answer, but I think I will drop the coverage on my wife once our net worth equals 1.5 times the coverage on her, and drop my coverage once net worth exceeds it.

Thoughts?

the fixer

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Re: Kill Life Insurance
« Reply #13 on: January 14, 2014, 03:20:47 PM »
This reminds me of a classic MMM post that's a favorite of mine: http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

You don't even have to look at the price, because you know the insurance company is making a profit off of you. Insurance is only a good idea if you cannot afford the consequences of the event it protects against, or if you have a higher risk of experiencing that event than the insurance company thinks you have (but read the terms carefully in this case, they may get seriously pissed off).

AccidentalMiser

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Re: Kill Life Insurance
« Reply #14 on: January 14, 2014, 03:35:10 PM »
This reminds me of a classic MMM post that's a favorite of mine: http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

Insurance is only a good idea if you cannot afford the consequences of the event it protects against,

This.

Cheddar Stacker

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Re: Kill Life Insurance
« Reply #15 on: January 14, 2014, 03:42:37 PM »
I've carried too much insurance on most things over the last 10 years of my life, but it's that "not being able to afford the consequences of the event it protects against" thing that made me think I needed it. I have lower coverage than many people, but still plan to reduce it further and further as time goes on and the stache grows. I love my wife, but she would not survive financially without me, so really do need my stache to be substantial. On the flip side, I would not be able to raise our two kids properly without her, so it all evens out.

oldtoyota

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Re: Kill Life Insurance
« Reply #16 on: January 14, 2014, 04:15:30 PM »
On a related note--sorry if hijacking, but it seems like you have your answer, and I figured I'd save everyone from a new thread on the same topic--what is a good way to determine when life insurance can be killed if you have a dependent?

I always assumed "18," but I am re-thinking everything this year. Do I need life ins for one more year? Two? Nine?

I have one child. Age 8. College is mostly covered. I am somewhere around 6-8 years until early retirement.

Edited to Add:

Maybe I have my own answer. I temporarily forgot I would be dead and that my spouse would inherit my 401k and IRAs. That alone would be around half of what he would get from the insurance company. So, isn't our retirement savings a form of insurance for the other?

I am looking at saving $1000+ a year by cancelling the life insurance.




« Last Edit: January 14, 2014, 04:24:02 PM by oldtoyota »

oldtoyota

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Re: Kill Life Insurance
« Reply #17 on: January 14, 2014, 04:21:41 PM »
This reminds me of a classic MMM post that's a favorite of mine: http://www.mrmoneymustache.com/2011/06/02/insurance-a-tax-on-people-who-are-bad-at-math/

You don't even have to look at the price, because you know the insurance company is making a profit off of you. Insurance is only a good idea if you cannot afford the consequences of the event it protects against, or if you have a higher risk of experiencing that event than the insurance company thinks you have (but read the terms carefully in this case, they may get seriously pissed off).

Great post. It's too late for me this year, but I will re-think dental insurance. First, I have to find out how much we would have spent if we'd not had insurance and then see if insurance actually saves us any money.


Cyrano

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Re: Kill Life Insurance
« Reply #18 on: January 14, 2014, 05:14:08 PM »
If you've already been in it ten years, and it's with a mutual life insurance company that pays dividends, and you already max out any tax deferred saving plans you have, you're probably ahead converting it to a paid up policy, and then counting the cash value of the insurance policy as part of the bond allocation of your investments to make more room for equities inside your tax advantaged accounts. 

Under any other conditions just surrender it for its cash value.

Cheddar Stacker

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Re: Kill Life Insurance
« Reply #19 on: January 15, 2014, 08:54:40 AM »
Old Toyota, your retirement savings, and any other savings, should be considered as a form of self insurance and therefore should replace your life insurance coverage once you feel comfortable that the husband and child would get by financially without you. I pay around half your premiums, and I can't wait to drop the expense when I have the chance.

If they don't need a fancypants golden parachute of $X upon your death, kill it. I'm in the same boat as you, just a few years behind feeling totally comfortable getting rid of our term policies.

AlmostIndependent

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Re: Kill Life Insurance
« Reply #20 on: January 15, 2014, 10:41:36 AM »
I was mulling this same question myself. I was thinking about killing my life insurance policy and I recently asked my financial planner that exact question in the course of a review of my finances. I should hear back from him this week or next with my overall plan, Ill be sure to let you know what his opinion and reasoning are.

oldtoyota

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Re: Kill Life Insurance
« Reply #21 on: January 15, 2014, 10:45:39 AM »
Old Toyota, your retirement savings, and any other savings, should be considered as a form of self insurance and therefore should replace your life insurance coverage once you feel comfortable that the husband and child would get by financially without you. I pay around half your premiums, and I can't wait to drop the expense when I have the chance.

If they don't need a fancypants golden parachute of $X upon your death, kill it. I'm in the same boat as you, just a few years behind feeling totally comfortable getting rid of our term policies.

Thank you! That was my thinking too and I wanted to make sure I was not missing anything. The fear-fear-fear advertising of the insurance industry is powerful stuff.


Cheddar Stacker

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Re: Kill Life Insurance
« Reply #22 on: January 15, 2014, 10:55:02 AM »
I was mulling this same question myself. I was thinking about killing my life insurance policy and I recently asked my financial planner that exact question in the course of a review of my finances. I should hear back from him this week or next with my overall plan, Ill be sure to let you know what his opinion and reasoning are.

One of the problems I will have with this, and with reducing all insurance premiums, is my insurance broker is a very good friend, a business client of mine, and appears to be a relatively "normal" person, meaning not the FI / RE type. Ditto for my financial adviser who manages about $20K of my investments.

They both have a vested interest in me keeping on the same track with them, because they both profit from my premiums/investments. I also profit from them as my clients, and as business referral sources. This is a very delicate situation that I'm trying to figure out. I'm in no rush right now, but it will become an issue in the near future, likely before I retire.

If your financial adviser has your best interest in mind, hopefully you'll get some great advice. Unfortunately it's hard to give someone advice that benefits them while simultaneously hurting yourself.

tfordon

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Re: Kill Life Insurance
« Reply #23 on: January 16, 2014, 06:49:26 AM »
If your financial adviser has your best interest in mind, hopefully you'll get some great advice. Unfortunately it's hard to give someone advice that benefits them while simultaneously hurting yourself.

Reminds me of a good Upton Sinclair quote: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it"

Fireman

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Re: Kill Life Insurance
« Reply #24 on: January 16, 2014, 06:55:46 AM »
Dropped the life insurance yesterday and I'll save about $400 this year.  I'm single (divorced) with no children and even though my parents were the beneficiaries, it's not that they *need the money.  Plus the only real debt I have is secured (house and car) and outweighed by its worth or my other investments.

Cheddar Stacker

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Re: Kill Life Insurance
« Reply #25 on: January 16, 2014, 08:57:29 AM »
@Fireman congrats on reducing expenses through optimization. I hope to join you in dropping this expense very soon.

thelamb

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Re: Kill Life Insurance
« Reply #26 on: January 16, 2014, 09:50:10 AM »
BTW, it didn't take much convincing (didn't really think it would) and I went ahead and sent in my cancellation, which, I shit you not, was a hand-written letter that I then had to mail in to some home office in another state where "my agent" is not, where I can only imagine the giant slush pile it will fall into.  Hope it gets processed. 

It's funny (but obviously makes sense) how company websites offer every possible way to add or extend services but cancellation is always completely arcane and arduous. 

Cheddar Stacker

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Re: Kill Life Insurance
« Reply #27 on: January 16, 2014, 10:03:14 AM »
Congrats.

Similar cancellation story - I switched cell phone providers a few month before finding MMM (in May I think) and I just received a $54 refund for a partial month I paid for at the old provider. It took 2-3 phone calls and some other prodding. They said their policy was to wait FOUR billing periods to refund any money in case additional charges occurred. WTF?

Undecided

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Re: Kill Life Insurance
« Reply #28 on: January 16, 2014, 10:21:20 AM »
On a related note--sorry if hijacking, but it seems like you have your answer, and I figured I'd save everyone from a new thread on the same topic--what is a good way to determine when life insurance can be killed if you have a dependent?

I always assumed "18," but I am re-thinking everything this year. Do I need life ins for one more year? Two? Nine?

I have one child. Age 8. College is mostly covered. I am somewhere around 6-8 years until early retirement.

Edited to Add:

Maybe I have my own answer. I temporarily forgot I would be dead and that my spouse would inherit my 401k and IRAs. That alone would be around half of what he would get from the insurance company. So, isn't our retirement savings a form of insurance for the other?

I am looking at saving $1000+ a year by cancelling the life insurance.

I'll "retire" long before my kids are 18, but will keep a (smaller) buffer insurance policy until the younger is around 23 or 25 probably, on the theory that even in retirement I could go back to my (well-paying) industry if some financial catastrophe arose and I were still alive, while my spouse and our (then young adult) children will probably not then realistically be able to make 15% of what I could make. So if I lose the option of going back to work, I'd like them to have am extra buffer.

oldtoyota

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Re: Kill Life Insurance
« Reply #29 on: January 16, 2014, 02:34:48 PM »
DH wants to get a physical before cancelling. I'm up to date on my doc appts, so I'm good to go.


SunshineGirl

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Re: Kill Life Insurance
« Reply #30 on: January 17, 2014, 08:02:17 AM »
DH wants to get a physical before cancelling. I'm up to date on my doc appts, so I'm good to go.

That's a good idea!

AlmostIndependent

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Re: Kill Life Insurance
« Reply #31 on: January 17, 2014, 09:08:08 AM »
DH wants to get a physical before cancelling. I'm up to date on my doc appts, so I'm good to go.

That's a good idea!

Indeed. When I was talking to the financial planner about canceling mine aside from various questions about my finances his cautionary words to me were to not do anything until we were sure that was the best course of action because once it's cancelled it could be significantly more expensive to get it back if I do need it. A thorough review of health and finances seems like a very prudent thing to do.

TomTX

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Re: Kill Life Insurance
« Reply #32 on: January 17, 2014, 03:13:29 PM »
Not only does that seem like a very high cost for life insurance, what is the point of life insurance if you have no dependents?

Cash it in. Today.