General Question

janbb's avatar

Do I still need life insurance?

Asked by janbb (58610points) February 17th, 2017

Just soliciting some opinions. We had taken out a fairly small life insurance policy on me when the kids were young. it is term life so no cash value built up. Trying to decide whether to keep it up. I have been paying the premiums so far but my kids are grown, self-sufficient and stand to inherit a fair bit of money in any case. Thoughts – particularly from those with financial or life insurance experience?

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33 Answers

snowberry's avatar

You might consider having enough to pay off outstanding medical bills and/or funeral expenses.

janbb's avatar

@snowberry Yes, that is one consideration but presumably one of my kids will have Power of Attorney by then and access to my accounts.

CWOTUS's avatar

Assuming there is enough “ready cash” for those final expenses (and also depending on what kind of funeral you expect your heirs to put on for you), a small policy may still be worthwhile, because my understanding is that the benefits are paid immediately to the survivor, with no requirement to clear probate, etc.

Since it’s well understood among my own heirs that any parties they care to host at my demise are to their own accounts, and that I require no more sendoff than, perhaps, an old cardboard box and a hot furnace, or a plastic bag and a dumpster, then I do not have life insurance, and haven’t for nearly 20 years now.

Tropical_Willie's avatar

Insurance will be paid upon death, power of attorney could be problematic.

Love_my_doggie's avatar

@janbb When you say “power of attorney by then,” do you mean the executor of your estate? I ask this because a Power of Attorney names a person, the agent, to handle matters for you while you’re alive. Power of Attorney terminates when the principal dies.

So often, elderly, ailing people name inter vivos agents and believe that the authority remains in force both during one’s life and after death. The latter is untrue.

jca's avatar

How much is it per month?

janbb's avatar

Good to know. One son will probably be both but that is an important distinction.

@jca $228 per year.

kritiper's avatar

Term life insurance ends when you’re 65 and the insurance company will shake your hand and thank you very much. And that will be all you’ll get.

janbb's avatar

@kritper I don’t think that’s true.

kritiper's avatar

@janbb But it is. That’s the difference between whole life and term. With term, you’re wagering that you will die before you turn 65.

Tropical_Willie's avatar

@janbb Read the policy, “term” means a limited time. “TERM” can be a time of ten or twenty years. Sometimes it does end at a certain 55 or 65.

LuckyGuy's avatar

IMHO, the answer is No. You (and your family) are financially secure. You have already made your kids beneficiaries on most of your bank and brokerage accounts. (If you haven’t done this already, you need to. You do not want to have them go to probate and end up giving some attorney 3% for doing absolutely nothing.)
You have no loans or long term debt. Your kids have enough ready cash to cover bills and immediate expenses for you so…
Don’t pay the insurance company another dime. Keep the money and effectively self-insure yourself.
Insurance companies take in much more than they give out. Look at their offices. look at the salaries they pay the top dogs and their minions. Who do you think pays for all that? The customers.
Keep the money in your brokerage account and make your kids beneficiaries. 100% of the funds will go to them immediately without probate.

janbb's avatar

@kritiper It was my understanding that whole life was an investment in that your build up cash value which you can cash out at a certain point while term life only covers you while you pay the premium but you may well be right. I’ll check into it; it would be useless if so, since I haven’t died yet.

I just looked it up – not the policy but you are correct about the term limits. Will have to find the policy tomorrow and check.

jca's avatar

@janbb: Also, look into whether or not there is some kind of insurance free as a benefit from your employer or pension (if you have one).

I am a public employee and the NYS pension system has a free life insurance for all employees. It pays three times the employee’s annual salary. In my case that’s over 200k, for not a dime out of my pocket. Many people don’t know about that insurance and they’re surprised when I tell them. If they read the litarature that is sent annually by the retirement system, they’d see it for themselves.

Cruiser's avatar

IMHO…life insurance carries the most water when your current financial state is insufficient to carry the debt you have addind in medical and burial expenses your heirs would face upon your demise. Think mortgage, credit card debt, anticipated higher education expense for your kids and how much cash you feel your S/O will need to mourn you passing and to move on with their lives reasonably debt free.

My wife’s dad passed at 55 and did not have 2 nickles to his name nor insurance…I had to finance his funeral out of my pocket.

If you can self insure the expenses you might face in the end at your stage and stature in life…then IMHO cancel the premiums and get a massage and pedicure instead.

JLeslie's avatar

I was just thinking about insurance yesterday! I keep thinking I should convert some of my term to whole life. I have two term policies. One ends in my early 60’s and the other my late 60’s or early 70’s, I don’t remember. Both my husband and I have the same amounts, which means I’m way over insured, because I don’t make much income, but my husband wants it if I drop dead. Mine is relatively cheap, $200’s a year, so it’s not that much money.

I think for you it’s a toss up. My guess is you have enough savings that if you died (God forbid) your kids inherit plenty to take care of burying you. So, that won’t really be a burden if I’m right.

If you don’t have long term care insurance, I personally think that’s more important. The burden of paying for care ongoing for long term illness is a horrible stress on the individual and the family.

I lean towards not bothering with paying the term insurance anymore, but I know my grandma would keep paying for it if she were you. She once told me “what kind of Jewish mother doesn’t leave money for her kids?” She felt an obligation to leave money to her kids. I feel like if my parents use up all their money and have fun doing it then that’s fine with me. I have no expectations of inheritance, except to say I would appreciate that the burial and funeral doesn’t cost me anything.

funkdaddy's avatar

I haven’t seen it mentioned that even term insurance is an investment, so for me at least, a lot would depend on the amount of the policy. (not asking, that’s your business, just saying it would be key)

If you’re paying 5 more years at ~$230/yr for a $250k policy, to me that would be worth paying it out. The policy was probably written so that the last few years are the only ones that make sense for you to keep it even without the need for the money.

You may even ask your beneficiaries if they want to take over the payments if you don’t.

Plotting risk vs. reward for someone dying always feels callous to me. I dislike it a lot. I’m the executor for my mom and mother in law, so had to have a lot of those discussions lately… the above is what I would tell them. Then take a walk by myself.

Rarebear's avatar

If you were to die today do you have enough savincs to cover everything you want?

(Coincidentally we made that exact decision today to cancel our life insurance)

LuckyGuy's avatar

Here’s another nail in the life insurance coffin: .

Insurance companies make money by looking at statistics and actuarial tables and calculating the odds that you will die at any moment. Then take that number and multiply it by the amount of insurance you want to get your rate. Then they double (triple?) it so they can make a hefty profit and pay for their buildings, employees, multi-million dollar payments to C levels, and return a little to investors.

If the chances of you dying were 2–3 times the average for someone your age then the investment is theoretically a wash. But the fact is, you are healthier than others your age. Look around you. You are active. You live. You love!
Cut your losses and forget about insurance. You do not need it – and neither do your kids.

funkdaddy's avatar

@LuckyGuy – usually for term life the payment is the same throughout, so they’re looking at the odds you die during the whole term.

Those odds are a lot lower at the beginning of the term (think 5–20 times lower), so things usually turn in your favor at some point. Insurance is an extremely price competitive business. They make money, but not investment firm type money. They usually actually break about even on policies and make money by investing and leveraging the money they’re holding. Buffet and his guys are big on OPM, “other people’s money”.

Imagine it as a different product, like a 20-year auto warranty. You pay the same amount throughout, the first few years are probably just paying into the policy and not taking much out, but those last few years are the ones the insurer is probably going to pay more out. It wouldn’t make much sense to cancel the insurance in year 16 unless you just didn’t need it anymore.

So with those same tables you mention, you might actually be at an advantage towards the end.

LuckyGuy's avatar

@funkdaddy You are only at an advantage toward the end IFF (if and only if) you got the term rate at the low price many years ago and continued to pay through all the years. That total “investment” is still a loser for you in the long run – unless you die much ahead of the average. Then your family makes out.

The insurance companies are like “the house” in Vegas. They have all the advantage and the control. They make and change the rules at will A few people* leave Vegas on the positive side but the vast majority lose.
Insurance is just a big gamble. If your family is set financially and you are healthy your best bet is to keep your money.

A strange game. The only winning move is not to play.. Joshua, War Games 1983

*I saw a number somewhere that said only 9% of gambling visitors to Vegas leave with more money in their pocket than they start with. 91% are losers.

funkdaddy's avatar

I don’t want to be the “pro insurance” guy in any discussion, it’s all a losing proposition by your definition and by your thinking we should all self-insure for everything.

If we want to liken it to Vegas, in gambling terms, term life insurance policies generally becomes EV positive at some point. Over thousands of similar policies, through variance, the policyholder will come out ahead. For us though, we only care about one policy, so it’s a personal decision.

Put another way, the insurance company will be more than happy to cancel your policy 15 years in, it’s to their advantage.

People take insurance policies because the safety net involved has value, that’s the primary service insurance provides. That was well addressed by answers before mine. But there’s also an investment component that needs to be addressed in decisions.

I’m just saying don’t forget about it. That’s all. Everything else is a personal decision.

CWOTUS's avatar

I’m in general and nearly complete agreement with @LuckyGuy on this. As to @funkdaddy‘s claim or assertion of ‘investment component’ to insurance, that applies – but only marginally – to “whole life” insurance or variants that actually and specifically include “investment” and cash value components. Even then, it’s one of the poorest investment vehicles that there is.

That simply doesn’t exist in a term insurance contract. The only way to “win” at term insurance … is to die. That’s a strange way to win, and explains @LuckyGuy‘s choice of movie quotations to support his position.

The only slight reason that I would say anyone who’s generally financially secure might want some component of term insurance in a portfolio is to enable the quick transfer of a specific amount of cash to a beneficiary for what we euphemistically call “final expenses”. That is, cash to pay for a funeral and / or body disposal, to enable family members to attend a distant event, to put up family members at a hotel, for example, while they’re in town for the funeral, and cash to help the executor or other family, heirs or others to defray expenses while the bulk of the estate is settled.

If your relatives have the power of attorney and can see your end approaching, such as in many end-of-life medical situations that play out over weeks, months or even years, then they can certainly accumulate the cash and arrange the disposition of the estate ahead of time. But not everyone’s life ends “over time”. Sometimes the end comes suddenly, with no time to plan or arrange things, and … your family might need money that will otherwise have to pass through various processes (and let’s hope that probate isn’t one of them!) which will take time to arrange.

Life insurance pays off immediately, as soon as the death is proven to the insurer. It’s ready cash to help your family if they need that. If they don’t, then it’s a complete waste of your money – but it still provides a benefit to the family / survivors, even if they don’t “need” it. So it’s not completely useless, only useless to you.

janbb's avatar

As someone whose family business was insurance, I definitely see the benefits of insurance in general – particularly when I lost a million dollar suit in an automobile accident claim. I don’t know as much about life as I do about P & C but I do agree with those who say it can be beneficial. It certainly would have helped me if my Ex had died in his top earning years.

I will weigh the specifics in my case and make an informed decision. Thanks for all the input!

JLeslie's avatar

Story time. I had a client when I worked at Bloomingdale’s who I’m pretty sure was quite wealthy. He used to buy a lottery ticket every week. he told me, “for $52 a year I might win millions. I pay that taking my wife to dinner in one night.” He didn’t need the money. He had a place in NY and Boca. He shopped in the designer department. You could look at it that way since your premium is fairly low.

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janbb's avatar

Update: I checked out the policy’s terms and it does continue but at a much higher premium in 2018 so I will not renew it next year.

CWOTUS's avatar

Hmm… who wants to win a lottery by dying?

Cruiser's avatar

@CWOTUS Who wants to leave their loved ones with a heap of bills? It happened to my wife when her dad died. I had to cover his funeral expenses and his widows/my MIL rent for the next 6 mo’s. A $100.00/yr term life insurance policy would have easily covered that $25,000.00 dent.

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