It depends, financially, if one of California’s distracted drivers manages to kill you on your way to work today does your family need the money?

Note, need, not nice to have.

If kids won’t need an additional care giver, less need.

If the kids won’t need additional capital for college costs, less need.

If the spouse won’t need to pay the mortgage or other bills, less need.

If you and your spouse goes, is the money need to cover estate costs?

Just my thoughts.

I wouldn’t cancel my Term Life Insurance. That’s the whole point of insurance, if shit hits the fan, you don’t have to worry. The point of life insurance is for your family to not have to worry about money if something happens to you. I rather that I never collect on my life insurance, like all other insurance. I feel it’s chump change for a peace of mind, kind of like other insurance, especially umbrella insurance. I would cut going out to fancy dinner once a month before I cut my life insurance.

Aw, a macabre mental exercise for Monday morning. Rather than ask for “gut feelings”, perhaps it would be better to hit the actuary tables and a statistics book. I’d help but my statistics course is a distant memory. Too bad we don’t know some Statistics whiz… like perhaps a guy that has a blog about housing statistics 🙂

Anyhow, I’d be curious about the correct approach, but shouldn’t you be thinking in terms of “Expected Value”. For example if you’re 40 and the policy is for 30 years with a 1 million payout and the chances of death in that time are 10% wouldn’t the expected value be 100K? Then the question would be how much is it going to cost at $750 year. It’s certainly not just $22,500 as you could have been doing other things with the money. I realize there are a whole slew of complications (future value of 1 million comes to mind). By the way, all my figures are made up. I have no idea of your age, policy amount or the probability of death.

Perhaps another much lazier (I like lazy!) idea is this. Approach several insurance agents. Tell them that you have a policy that has another X years to go and pays out Y dollars. Ask them if they’d cut you a policy that could beat the current yearly payment. If the answer is “Heck no”, perhaps you have a good deal? I mention this because I recall that term life insurance is a good deal towards the end of the policy. The idea being that $750 a year for a 20 year old is a rip off but is a good deal for a 49 year old. Both because the the 49 year old is more likely to pop off and because $750 isn’t worth what it was at the beginning of the policy.

Well, with those cheery thoughts out of the way, I wish you a happy week!
Cheers

He did say pay off the mortgages, which makes me wonder on the amount.

Statistically, if flu is 45ish, he has a 0.3% chance of dying (not including modifications for his prior medical conditions). If he’s 40ish it’s 0.2%.

Reversing the expected value, that indicates a policy needed in the $250K-$350K range.

So if he’s 45ish with 5 years or so to go on the policy and it’s north of $250K, technically he’s gambling with the odds in his favor.

Or think of it as an opportunity cost, expected value of $750/yr, not leveraged in a typical stock market return is worth right around the low $5K range over the next five years.

So think of it as gambling on a penny stock, it has a 98.5% chance to go to zero and a 1.5% chance to pay off the value of the policy and it costs $3750.

It’s a fairly small amount, so if this is a TL from your early and healthy 30s and is a $500K policy, kind of a no brainer to keep the policy until the term expires provided the $750 isn’t an issue.

Yes, there is a golden rule.

You don’t need any life insurance if you are completely financially independent. If your family can live off of a safe withdrawal rate from your existing assets and doesn’t need your income at all then you should stop paying for life insurance regardless of your feelings, playing the odds, expected value, etc.

Insurance is for things you can’t afford the loss on. Once you can afford the hit, cancel the insurance.

It’s probably not your decision, flu. It’s your wife’s. She would be the one using it, not you.

About a decade ago I considered ditching my policy too. I mentioned it to my wife. She said that we could – but that would change the direction of our life as she would change to being risk adverse…new cars, new home purchases, etc would not occur. She would have to protect herself by making less risky decisions.

So we kept the policy.

And didn’t you have a major health issue a few years back? To me, that’s reason enough to keep the policy.

I think of it as gambling, too. Because I’ve never had good luck at the casino, I’m guessing I’ll lose the bet and live. If I don’t, my family will be financially secure. Win-win… sort of. We’re actually considering doubling our coverage for the remainder of the term.