Many Retirees Consider Canceling Life Insurance

Published: Thu 19 Nov 2009

Larry Roth - Staff Writer

As retirement becomes increasingly expensive, more and more older Americans are jettisoning their life insurance policies as soon as they reach retirement age in an effort to minimize their living expenses. Most life insurance policies sold in the United States are term policies, which means the majority of retirees will face higher and higher premiums as they age if they do not cancel their policies. On the other hand, canceling a life insurance policy may end up costing some retirees more than it will save them.

Retirees who might want to reconsider jettisoning their life insurance policies include those who still have dependents, those with very valuable estates, or those who wish to leave a generous inheritance to their children. Similarly, retirees who have whole life policies should not cancel their coverage.

Instead of canceling your whole life policy when you retire, see if you can stop paying the premiums. Depending on when you purchased the policy, it may have accumulated enough cash value to take care of the premiums for the rest of your life without additional payments. Of course, using your policy's cash value to make premium payments will diminish the death benefit.

Another reason not to cancel a whole life policy is because your premiums will not get any higher as you age. Although term life policies have premiums that become very expensive as the insured gets older, the premiums of whole life policies never change. Your policy might be worth keeping when you consider the level of protection you're getting for the affordable premiums.

Most retired people who decide to cancel their coverage, however, have term policies, not whole life. Term premiums can get prohibitively expensive if the policy is renewed after your fifties, so canceling may be in your best financial interest. If you no longer have any dependents and your spouse would be able to live off of your retirement investments, you probably don't need to continue making payments on your coverage after retirement.

One option more retired persons are considering is to adjust their level of life insurance coverage rather than cancel the policy altogether. A small amount of life insurance may be helpful to your spouse and the other people you leave behind to cover your funeral and burial expenses after you die. You may be able to adjust your policy to arrange a more appropriate death benefit than what you currently have, thereby radically decreasing your premiums in the process.