22 Apr Should I let my term insurance lapse?

 Q. My kids are out of college and I’m trying to decide if I still need life insurance. My wife and I have term policies for $500,000 of coverage that will expire in a couple of years. We’re both 56 and working, and we each have one year’s salary of coverage from our employers too. How do we decide if we still need the larger policies?

A. It’s smart to ask the question before you let the larger policies lapse.

It’s great that you have some coverage from your employers and that your kids are out of college. But those aren’t the only variables you need to consider.

“Life insurance is intended to cover the financial needs of our loved ones in the event of an untimely death,” said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. “An untimely death is dying before we have accumulated our nest egg. For most of us, those needs include covering daily living expenses, paying off the mortgage and paying for our children’s college tuition.”

Kiely said there are other reasons to want life insurance, such as providing funds for your final medical and burial expenses, or having life insurance to cover estate taxes upon death or to have funds available to fund a buy/sell agreement for a privately held business.

Next, you need to look at your retirement savings.

“If one of you were to suddenly pass away, would the survivor have enough money to get by? If your answer is yes, then maybe you no longer need life insurance,” Kiely said.

If you have little or no debt, each of you could sustain yourself without the other’s income, and each of you is adequately prepared for retirement through pensions/401(k)s, then perhaps you could drop the existing policies, said Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway.

“On the other hand, term policies purchased years ago are probably a fairly cheap safety net and since you have paid for it all these years, why let the insurance company off the hook?” McCarthy said.

Indeed, if you cancel the policies now and regret the decision, you might not be able to get new insurance.

The final decision of course is yours. If you cancel your life insurance and later regret it you might not be able to get new insurance.

“You could have an undiagnosed ailment that would preclude you from future coverage,” Kiely said. “If you are not sure and the premium fits in your budget, possibly you should keep your coverage a little longer.”

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This story was first posted in April 2015.