Is it time to drop life insurance coverage?
- Life insurance is an essential form of protection for most people.
- However, life insurance is only necessary for a limited time.
- Coverage can be dropped when certain milestones are reached, including retirement age and having adult children.
Almost everyone needs life insurance. Otherwise, loved ones who depend on their income or services would find themselves in dire straits if an untimely death occurred and there was no money available to pay the bills or pay someone to provide those same services.
But, even if everyone needs life insurance sometimes, no one needs a policy to be in place forever. In fact, term life insurance is the best coverage option for most people, rather than a whole life insurance policy, because whole life insurance plans cost a lot more for unnecessary permanent coverage.
The big question, however, is how policyholders can determine how long they will need life insurance coverage, so they can decide how long they will last. In making this decision, it’s a good idea to watch for three signs that the cover is no longer needed.
1. Your children are grown
Many people buy life insurance to ensure that their children can support themselves even if something happens to them. Raising children is very expensive and educating them is even more expensive. So it makes sense to have a policy in place until the kids are adults, have finished college, and are on their own.
However, once the children are adults and independent, life insurance may no longer be necessary, unless a spouse is still dependent on an income or there are aging parents to care for. to occupy.
2. You have retired
Income replacement is another main reason to purchase life insurance. People buy a policy to ensure that their family can continue to pay the bills if they die and their income disappears.
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But, at some point, people stop working and start relying on their savings to support themselves. At this point, no one may be dependent on their ability to earn a paycheck, so it no longer makes sense to buy life insurance.
It is important, however, to consider how a spouse will fare if the deceased person’s Social Security check stops. While the surviving spouse keeps the larger of the two retirement benefits either person was receiving (through Social Security survivor benefits), the household will go from two checks to one.
If there isn’t enough money to live on when this happens, the life insurance may need to stay in effect a bit longer.
3. You have enough wealth that your family does not depend on your income
Finally, the last big sign that no life insurance is needed anymore is when the policyholder has enough wealth to support loved ones without a death benefit being paid.
The purpose of life insurance isn’t to make people rich, it’s to ensure that their lifestyle doesn’t become unmanageable due to premature death. If there is enough money to pay for the needs of surviving family members, there is usually no reason to keep life insurance (unless it is purchased as part of a strategy broader estate planning, such as to provide tax-free income or to cover the cost of estate or inheritance taxes).
If any of these three signs apply, it may make sense to terminate life insurance coverage because a policy will no longer serve to protect loved ones from hardship.
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