Ask Money

Time to let an insurance policy lapse

Chris Farrell Nov 24, 2010

Question: I am 63 and retired (not my idea). Between Social Security, pension, and 4% of my 401(k), IRA, and other investments, we’re at 75% of my pre-retirement income. We’re doing fine but, needless to say, we want to control expenses. We currently owe about $110,000, 90%+ of which is our mortgage which we just refinanced at 3.75% for 15 years. The rest is a student loan and car.

What do we need in the way of life insurance? I currently have a $100,000 whole life policy I’ve had since graduating from college plus a $43,000 policy from my working days. My wife has a $40,000 whole life from when we first got married 39 years ago. I have additional insurance that I was eligible to carry for 18 months after I was terminated, but that is coming to an end. I can buy insurance to replace that but I wonder if it is necessary. I’m inclined to let it go. We have three children, but they are married and out on their own. Suggestions? Thanks, William, Eden Prairie, MN

Answer: You’re smart to scrutinize expenses. I would be inclined to let the policy go, too. Your children are grown, married and making their own lives. For many people in retirement in similar circumstances there is little reason to carry much life insurance (assuming you’re not dealing with a large estate at death; in that case life insurance usually plays a critical role in an estate plan).

However, that is a general reaction. Here’s one way to think it through. You had life insurance when you were younger to protect your family’s standard of living in case you died. Your wife could keep the house; take some time to grieve without worrying about money; and your kids could afford to go to college. Now that the kids are off on their own, the question is could your wife’s standard of living stay the same without this particular insurance policy?

(By the way, I’m addressing the answer to you but everything I say works the other way, too. If your wife died, what about your financial cushion?)

In many cases, the answer is yes–let the policy expire–after adding up savings, retirement assets, the value of the home,and other assets. You also need to take into account your liabilities–the mortgage, student loan, and car loan. But since you have assets, a pension, and other life insurance policies this particular one may not be needed.

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