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When to let Term Insurance Lapse

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  • Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2052
    Joined: 01/15/2017

    Coming up on 20 years Term next year– $1.5M.   Time flies!   Crossed both LeanFI and NormalFI, but FatFI and BurgerFI still in play.

    So when did people let go of their Term insurance?  Reupping at this point in mid 40s and quite a bit heavier and risk factors will be probably be costly.  Have corporate policy that’s 700k that we’ll keep along for house payoff offset (only real debt).    NW by the books is $6M.

    Thoughts?

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    #236234 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016

    👍👍👍for BurgerFI.

    $6M net worth?!? I think you are past needing your policy. Would be crazy to pay a high premium on a new term policy at this point – you’ve self-insured. Good job and congrat’s.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #236238 Reply
    Liked by jz
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3477
    Joined: 01/21/2016

    I am MOFI and still keep a $500k policy. I probably do not need it, but it’s a consolation prize to the family if I kick the bucket earlier than expected.

    My wife has a policy from work, paid for by her company, which is 3x base salary. If it were not provided, I would probably not pay for her to have a separate policy.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #236246 Reply
    Liked by Craigy
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    Congrats. I would let it pass and not look back. My plan is to run out the clock, for similar consolation prize as does Vagabond.

    #236248 Reply
    Avatar molar roller 
    Participant
    Status: Dentist
    Posts: 48
    Joined: 05/31/2018

    I am in a similar position as you… took out 20 yr term policies for myself and the wife when we bought our house 13 yrs ago.  Kids are 16 and 19.

    We let wife’s $500K policy lapse a few years ago, mostly by oversight but didn’t think we needed it anyway.

    I am still paying $1500/yr for my $2M one.  Will definitely not renew and may let it lapse when the kids are in college or out of it.

    #236250 Reply
    White.Beard.Doc White.Beard.Doc 
    Participant
    Status: Physician
    Posts: 937
    Joined: 02/06/2016

    When you are fully FI, you no longer need life insurance.  Despite FI, I keep some term insurance.  My one remaining level premium 20 year policy was more expensive in the early years.  (First, I was paying the same premium despite a lower risk of dying at a younger age, and second, inflation has eroded the value of the static level premium a bit more each year.)  So the same coverage is cheaper in the later years of the policy, it represents low cost insurance, a good value.  Second, although there are plenty of assets for the dependents, on a psychological level I like knowing that the family would get an extra chunk of change if something happened to me.

    Is the life insurance necessary at this point with FI? No.

    Do I have another need or a better use for the money at this moment? No.

     

    #236260 Reply
    Avatar Neuro-doc 
    Participant
    Status: Physician
    Posts: 177
    Joined: 02/16/2017
    Earnest refinancing bonus

    I’m in my mid-fifties, kids are almost finished college, and I’m at least fatfire net worth. We dropped our term life 1 and 3 years ago. I realized we didn’t need the coverage three years ago, and suggested to my wife that she could drop her policy 3 years ago. She was less comfortable about going without life insurance on me, and it took another two years to convince her that I didn’t need to be insured. The clincher was that I pointed out that our net worth had risen over those two years by more than the death benefit on the policy I wanted to cancel.

    #236261 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1006
    Joined: 01/11/2017

    Link to all the leanfi, fatfi, burgerfi, mofi terms?

    If NW is $6M and you are in mid 40s, I’d say drop term if your annual spending is under about $200k. More than that and I might get a ten year $1m policy as a karmic insurance.

    We don’t plan to renew term when it expires in low fifties. I could probably drop ours now, but it’s a relative bargain in the outer years and superstition demands I keep it.

    #236268 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2052
    Joined: 01/15/2017

    Thanks all for the replies.   I’m comfortable in letting it lapse and just keep the corporate policy until we pull the final debt trigger of paying off the mortgage and/or retire.

    @fireshrink – no link; just different levels of FI that we set:  LeanFI = beachbum.  basic yearly expenses with household min daily spend for ‘beach bum in VHCOL san diego’ living;  Normal FI = current discretionary spending habits;  FatFI = liberal post retirement travel budget for NICE travel 25% of the time (1 week/month);  BurgerFI = fictional – just saw that JPG on FB and loved it.  Would just peg that imaginary private yacht with its own crew like the ones we saw at Comic-Con 😉

    #236284 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 517
    Joined: 06/12/2017

    If you no longer need the coverage, you don’t have to wait for the policy to end. You can simply call the company up and tell them you’d like to cancel the policy. Many companies will even issue a pro-rate refund of unearned premiums.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #236420 Reply
    Liked by Craigy
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 562
    Joined: 06/14/2016

    I would let term life insurance expire once FI, but might keep disibility insurance a bit longer. My thinking is, if dead, I would have no ongoing expenses. But, if disabled, my costs might go up depending on the severity beyond current FI spending levels.

    #236421 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 2058
    Joined: 09/16/2016

    Term insurance is usually cheap enough that it can still make sense to keep if you don’t need it.

    But if it’s getting expensive and you don’t need it, it’s pretty easy to justify dumping.

    LEVEL 1 WCI FORUM MEMBER.

    #236558 Reply
    Avatar jz 
    Participant
    Status: Physician
    Posts: 672
    Joined: 01/09/2016

    Now age 62.  I dropped mine 14 years ago, and at $2k annually, I savor the $28k extra in my purse, not theirs.

    #236562 Reply
    Avatar Dusn 
    Participant
    Status: Physician
    Posts: 194
    Joined: 01/02/2018

    $6M isn’t FatFI?  I’m now more worried about what you mean when you say that you’re “quite a bit heavier.”

    #236564 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1316
    Joined: 02/15/2016

    But if you’re normal FI when you’re alive, wouldn’t your family be FatFI with you dead?

    I’d likely let it lapse, but it’d depend on your premium.

    #236595 Reply

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