One of the responsibilities that we tackle for all of our members in The Relaxing Retirement Coaching Program™ is managing risk.
You can’t avoid all risks completely, so I view it as evaluating and then “managing” them.
When you were younger and raising a family, the financial risk your family faced if you were no longer here was much more real for you.
If your paycheck wasn’t there for your family, what would they do?
However, now that your family is grown and out of the house, do you still need to pay those premiums and keep that life insurance?
That’s a very important question that, for most people, is more emotional than rational.
What I’ve found to be so interesting over the years is trying to demonstrate to someone who has had life insurance for years that they no longer need to keep it.
It’s hard to let it go after paying for it for so long.
How Can You Determine If You Still Need It
This is really just a math question. And, it requires the same 3 questions we asked last month about a completely different risk:
- “What’s my financial loss if I don’t have this insurance?”
- “What’s the probability that I’ll suffer this loss?”
- “Am I willing to risk absorbing this entire loss myself, or should I pass on some or all of the risk to an insurance company by paying a premium?”
In this case, what is life insurance?
It’s money. Money that is delivered to your heirs upon your death.
So, the question is, does your spouse and family still need that additional amount of money when you die (over and above everything you’ve saved and accumulated) to support and continue their lifestyle?
Let’s assume for a minute that you’ve gone through the all-important process of identifying precisely what it costs you and your spouse to live exactly the way you want.
You’ve prioritized what you want to have happen while you’re living and when you pass away.
You’ve tallied up all of your income sources like social security, pensions, and rental real estate. And, you have a crystal clear handle on where all of your money is.
You’ve run your Retirement Resource Forecasters™ into the future and the results are that you have more than enough money to support you and your spouse for as long as you live.
In other words, you no longer need to work to support yourself. You have enough money saved up and you can afford to “retire”, aka, you no longer need a paycheck from work!
Answering Question #1
Going back to Question #1 above then, what is the financial loss if you don’t have this insurance?
Take a moment to really think about this.
If you have enough money saved up to support both of you while you’re both living, shouldn’t there also be enough money to support only one of you if something happens to you?
If the answer is yes then you don’t need to pay for life insurance anymore!
Your spouse and family don’t need more “money” when you pass away (i.e. life insurance) because you already have enough.
There are two exceptions to this where you may still want to carry life insurance:
- If you have a monthly pension which ends when you pass away because you’ve chosen the Single Life pension option.
- If you’re purchasing the life insurance inside of an irrevocable life insurance trust to help provide liquidity and pay your eventual estate taxes or income taxes due if you have large IRA holdings.
The key point in all of this is ‘knowing your numbers’.
If you’ve done your homework and you know exactly where you stand financially as we discussed above, then it becomes a rational decision based on fact, not emotion.
Take the time to know your numbers, and objectively evaluate them so you don’t pay for something you don’t need anymore.
It’s highly unlikely that an insurance agent is going to tell you this because they continue to receive commissions as long as you keep the insurance, so you have to do a little homework to keep yourself honest.
The bottom line is that if the risk of “financial” loss is no longer there, you don’t need to pay life insurance premiums any more. You are far better off spending those premium dollars to cover a more pressing financial risk like long term care or personal liability from a lawsuit.
Or, if you’ve already taken care of that, take another vacation every year, or go out to dinner one more time every month to a restaurant you wouldn’t have gone to otherwise!