Excess Term Life Coverage

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OilPatchLawyer
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Joined: Wed Aug 17, 2022 5:30 pm

Excess Term Life Coverage

Post by OilPatchLawyer »

Hello - I just retired. I have sufficient amounts in taxable brokerage and IRA accounts to fund my retirement. I also have excess term life insurance coverage that I believe is no longer necessary. I have $1,250,000 on myself and $750,000 on my spouse. Two kids out of the nest and one in high school. Mortgage balance is $300K. Equity on home is $600-800k, My thought is to trim these policies down to $300k each. The savings would be significant and would offset my increased health insurance costs. I am 62 and my spouse is 56. What would be a reasonable analysis to approach this excess coverage issue? Pros / cons or anything I am missing in my thought process? I have several health conditions that could make underwriting a new policy on myself costly and difficult .
123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: Excess Term Life Coverage

Post by 123 »

If you can fund your retirement in the lifestyle that you and your spouse expect (including the launch of the last child) there may not be a need for any life insurance. There comes a point at which the receipt of a life insurance payout does not add to the life experience of a surviving spouse except to the extent that it make them a more attractive spouse for someone else.

How long do the established term policies have yet to run? Some folks with excessive income and assets are always tempted to run them to the end with the hope of an (unfortunate) payout.

You and your spouse may have enough.
The closest helping hand is at the end of your own arm.
sc9182
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Re: Excess Term Life Coverage

Post by sc9182 »

Nobody could tell you, possibly not even yourself. Even if someone told you something - most likely it be wrong. Who knows.

If you have sufficient assets, and surviving spouse not in bad-need of insurance proceeds -- slowly wean away a portion of it (trim down the coverage). Instead of doing all-at-once, may be steadily do it over a period of time (assuming your insurance provider allows that over multiple transactions/years).. would try to keep some/decent-amount coverage until your SS filing time ..
Gradient Descent
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Re: Excess Term Life Coverage

Post by Gradient Descent »

Life insurance is to protect survivors from financial ruin and to make up for potentially decades of lost earning potential (eg, the 30 year old breadwinner dies and leaves behind a stay at home spouse and 2 kids). Based on your ages and the fact that you said retirement is funded, the question seems to be: If you or your spouse were to die today without life insurance, would it jeopardize the other’s retirement or lead to financial hardship?
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Stinky
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Re: Excess Term Life Coverage

Post by Stinky »

OilPatchLawyer wrote: Wed Aug 17, 2022 5:59 pm Hello - I just retired. I have sufficient amounts in taxable brokerage and IRA accounts to fund my retirement. I also have excess term life insurance coverage that I believe is no longer necessary. I have $1,250,000 on myself and $750,000 on my spouse. Two kids out of the nest and one in high school. Mortgage balance is $300K. Equity on home is $600-800k, My thought is to trim these policies down to $300k each. The savings would be significant and would offset my increased health insurance costs. I am 62 and my spouse is 56. What would be a reasonable analysis to approach this excess coverage issue? Pros / cons or anything I am missing in my thought process? I have several health conditions that could make underwriting a new policy on myself costly and difficult .
Welcome to the Forum! Glad that you posted your question.

When you say that you have "sufficient amounts .... to fund my retirement", it sounds like you've done an excellent job of saving for your retirement. Because of your excellent saving, you don't see a need to work (for a paycheck) in the future.

The most common use of life insurance is to provide for a lump sum death benefit to compensate for loss of future income of the deceased. Since you plan no future income (from work), there's arguably no need to maintain any life insurance.

If it makes you feel better to keep $300k on each of you and spouse to pay off the mortgage at the first death, go right ahead. But I also wouldn't fault you if you were to drop life insurance coverage entirely.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Chardo
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Re: Excess Term Life Coverage

Post by Chardo »

Might want to think about it differently. You don't need the insurance. But it may be one of your more valuable assets. Look at it as part of your portfolio. If your health problems affect your life expectancy, converting and maintaining that policy could lead to a very attractive return on investment. You might even be able to sell the policy.
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simplesimon
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Re: Excess Term Life Coverage

Post by simplesimon »

OilPatchLawyer wrote: Wed Aug 17, 2022 5:59 pm Hello - I just retired. I have sufficient amounts in taxable brokerage and IRA accounts to fund my retirement. I also have excess term life insurance coverage that I believe is no longer necessary. I have $1,250,000 on myself and $750,000 on my spouse. Two kids out of the nest and one in high school. Mortgage balance is $300K. Equity on home is $600-800k, My thought is to trim these policies down to $300k each. The savings would be significant and would offset my increased health insurance costs. I am 62 and my spouse is 56. What would be a reasonable analysis to approach this excess coverage issue? Pros / cons or anything I am missing in my thought process? I have several health conditions that could make underwriting a new policy on myself costly and difficult .
Is there a significant cost savings or is underwriting a new policy costly and difficult or both?
VoiceOfReason
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Re: Excess Term Life Coverage

Post by VoiceOfReason »

Based on your description, you don’t NEED the policy, but that doesn’t mean you should t keep it.

I think you are viewing this the wrong way. View it in terms of VALUE not need. The last few years of a term life policy offer the most value than any other portion. It’s the time you are most likely to die and the policy payout. You would be willfully giving up the most valuable portion of the policy and the specific reason this term policy cost more all along the way than the shorter term policy you could’ve bought originally.

What are the details of your assets expenses and premium on the policies?

Last thing to consider, there are two sides to this transaction. You and the insurer. The insurer would be ecstatic if you called up now and cancelled in the final years of your policy with the health conditions you have.
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