Life insurance

yborgalJanuary 11, 2005

We're not there yet, but many of our friends are opting not to renew their life insurance policies. Their decision is based on the fact that the kids are grown, the house is paid for and they have money in the bank. The premiums would be about $6000 a yr for a $500,000. They plan on saving the money instead. Is this a common thing to do when you're approaching 65?

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I believe that is or was the advice of most financial planners. Life insurance becomes very expensive as one ages and if you have planned right, and have the right kind of pension, you shouldn't need it. I can collect on my husband's pension should he die before me so, once retired, we shouldn't need life insurance. The medical insurance will keep us in enough of a financial bind without adding another large expense.

    Bookmark   January 11, 2005 at 11:55PM
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If money is tight, the amount spent for premiums can be a critical part of maintaining a certain life style. It's just a matter of deciding whether or not the surviving spouse could manage on savings, etc, should they need nursing home care for a long period. One thing that can be done, if the policy has a cash value, cash it in and put the money into CDs or bonds so that it is more easily available for use by both if needed. Investigate to see if the policy gets "paid up" at anytime. If it does, then you might find it sensible to continue until that time.

    Bookmark   January 12, 2005 at 9:35AM
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I don't know about other retirees, but we canceled my husband's company's life insurance on him when he retired. It wasn't expensive, but we didn't need it. I get full pension if anything should happen to him, I wouldn't need it.

    Bookmark   January 13, 2005 at 8:37PM
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I have a bias against some of the things that the life insurance people have done.

I believe that we need it when young - when our assets are few and potential need is great: we have little ones who depend on us financially, a mortgage, etc.

Financial planners say that we should use insurance to provide for our loved ones during the time that they can't manage on their own. Perhaps also to provide for a spouse who might not be able to maintain herself, while children are young or later.

I currently get a spam message regularly that says, "What would your loved ones do if you died?", to which I say to myself, "About the same as they are doing now", since the youngest just turned 40 a couple of months ago. If they both, being capable in mind and body, can't manage on their own by this time - when are they ever going to be able to do so?

The idea is to build your asset base - one of the major ones being a home, until the mortgage is paid off, so that, as you get older, when there is a larger likelihood in any given year of you dying, so the premiums on term insurance increase, you are developing an increasing asset base, looking to the day that you don't need insurance any more.

There is a case to be made for people to buy insurance, which usually is paid tax-free, enough to cover the tax load that would be assessed at death, in order to preserve their estate intact for their offspring.

Some feel that the insured person is betting that s/he is going to die and the insurance company is betting that s/he will live and keep paying premiums for an extended period - and that the insurance company has the actuaries.

Such people decide that they will save and continue to invest the premiums, which may mean that their estate will have a lower after-tax residue to pass on if they die within the next few years, but if they survive for an extended period, they may come out better in the end.

Some suggest to their offspring that, since it would be the offspring who would benefit, that the offspring pay the premiums.

Not a good idea should one harbour even a minimal suspicion that the offspring might poison one.

Have a great year, all.

joyful guy

    Bookmark   January 25, 2005 at 4:53PM
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They tell about what a wonderful thing it is that one has "cash value" with whole life insurance, which doesn't happen with term.

However ... in order to access the "cash value", one usually must cancel the insurance, which means that, when you die ... no death benefit.

If one keeps the death benefit intact ... the cash value just more or less sits there.

Question: Have you figured a way to arrange to be alive and dead at the same time?

That's about the only way that one can collect on both sides of that deal.

Have a great weekend.

ole joyful

    Bookmark   June 7, 2007 at 4:10PM
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Be careful when you cash in your life insurance policies. Although we are usually researchers to the nth degree, we didn't figure the tax consequences of doing this. By cashing in 3 policies in one year, it pushed us into the next tax bracket & cost a lot (to us) of money. If we had cashed in one per year, we could have avoided this. Not all the amount you receive is taxable, but some is, or was to us.

We did figure, however, the relative return we would have by investing that premium cost & return vs. leaving it in to earn the insurance return plus pay premiums. We figured it by estimating we would live till our mid 80's. It was better to cash them in.

Our daughter, who is an estate planner, was appalled we had done this without discussing it with her. Her concern, however, was with the inheritance issues. So it would be good to check with your attorney first.

    Bookmark   June 7, 2007 at 6:42PM
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If that daughter is worried about estate shrinkage ...

... maybe she'd have liked to have paid the premiums?

There may have been a reason that you chose not to consult her.

Possibly her nose is a little out of joint, being as her folks showed little faith in her expertise.

ole joyful

    Bookmark   June 10, 2007 at 8:08AM
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Hi, ole joyful.

Actually she did suggest she would have paid the premiums. She just can't divorce herself from her 'best advice for her client' role. I think she knows us well enough to understand we usually feel up to the task of money management & she can't manage us very often. Parents, ya gotta love 'em.

She might, however, have caught the tax consequence penalty that we stepped into if we had thought to ask her about cashing in all three policies. But we would have caught it ourselves if we had thought to ask that question. Since we usually understand the tax system quite well, it didn't occur to us. Think our heads are swollen? It looks that way. Or perhaps there is just a non-functioning cell block in memory. We need to defrag.

Hope you have a beautiful week.


    Bookmark   June 11, 2007 at 2:45AM
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