Thursday, September 18, 2008

Should I Cancel My Life Insurance?

Jacob at Early Retirement Extreme asked me why I have life insurance after I posted my $700/m budget. The reasons I have life insurance are perfect examples of how emotional money can be. The easy answer is that, no, I don't need life insurance. I have no dependents except a cat.

Here's why I bought it:

I have two 30 year term policies, one for $100k and the other for $500k. I bought the $100k policy because I was debt free, didn't have any other financial goals at the time, and I thought that maybe I would get married and have kids in the next 5 years and the premiums would be cheaper if I got it when I was young and healthy. 30 years would be plenty of time for the kids to grow up and by then I would have enough money anyway and wouldn't need life insurance. That policy costs $11/m.

Then, for some reason I can't even remember(it probably had to do with the fact that my sister died young and left 2 children without life insurance) I wanted MORE insurance so I got the $500k policy at $36/m to replace the $100k but I never cancelled the $100k policy. I pay the yearly premium for the $100k policy and every time I do it I think I should cancel it, but I don't. The $36 premium comes out of my checking account automatically so I don't even think about it. That's $47 total a month!

So, 5 years later I am not married and I don't have kids. I have thought about a trust fund for the cat but how much money does she really need? If she lives 10 years more (she is 8) I think $10,000 could keep her in the lifestyle to which she has become accustomed. I have also thought that it would be cool to leave behind college funds for all of the nieces and nephews. But really I would rather be alive than leave them money. They'd probably take it for granted anyway.

What do you think? Should I cancel both policies? I need affirmation!!! :)


Anonymous said...

I am single and the only life insurance I have is a policy that my mother paid 15 cents a week on from the time I was a baby till maybe I was 18. I think it is worth about $2,000 now, and I have thought about cashing it in, but I would have to find the paperwork!

Otherwise, I think I have enough to cover my cremation/burial expenses (or do for the time being, lol - let's see what tomorrow brings) I don't even bite on the offers of $1,000 free life insurance policies through my bank/credit union, etc - cause I think they just want to annoy me if I sign up.

Apparently you can consider your life insurance policy an investment by selling it to someone - then if you die - well they get the cash. Don't know whether you would get much if you are relatively young and healthy though. Viactal investments, or something like that.

Anonymous said...

Would cancelling help you reach your goal faster?

Amy said...

I have a small policy (25,000) which my mother can use for my final expenses. I am single with no children but keep the policy because I may have hospital bills (depending on how I die) that would claim against my estate. I figure the life insurance goes directly to her and no one can claim against it thus saving her from the stress of my final expenses.

Anonymous said...

I don't have life insurance myself because I'm single with no kids. If you don't think you'll have kids or someone relying on you for support I'd suggest canceling the policies. Maybe keep the smaller policy if it give you peace of mind since it doesn't cost too much. Just make whatever decision you feel comfortable with.

I posted about your $700 a month budget on my blog and it is getting some interesting reactions. I invite you to come over and look when you have a chance.

Lizzie @ her homeworld said...

Hi Daizy
You might think that as an accountant I would say keep them but I can't. They sound like a waste to me & I am quite surprised you have them. I cant remember reading them in your budget but I probably did and assumed that the mortgage depended on them.
I would put the money in the mortgage pot again.

Sallie's Niece said...

I think the idea of leaving money to your nieces and nephews is sweet but there's no need to have too much coverage. Maybe one would be better. Slightly off-topic but do you not want to get married anymore?

Anonymous said...

I am single with no kids. I have a free policy through my work that would pay 2x my annual salary for as long as I work there. I have had some version of that all the places I have worked.

f I did not have that, I wouldn't go out and buy a policy, unless my family/marital status were to change. It may be worth keeping a small policy that would cover funeral expenses. That is what my dad had for his whole life.

Anonymous said...

It sounds like you plan on getting married and having kids. If so, keep it. Now that I am married (and planning on having kids), I "need" to buy more life insurance. Unfortunately, I now have a medical condition that drives up the price dramatically.

Daizy said...

Hello all my blog buddies and thanks for commenting!

Anonymous #1-I had one of those credit union policies for a while and I was annoyed by the junk mail so I cancelled it. I did read something about selling my life insurance a while back. I probably am too young.

Anonymous #2-If I had $47 more a month I would probably use it for my travel fund since I am a little short right now.

Amy-That is a good point about hospital bills. Perhaps that is a reason to keep one of my policies.

Tight Fisted Miser-I'm beginning to think keeping the smaller policy would be a good idea for my own peace of mind. And I am going to go right over to your site to see what they are saying about me!

Lizzie, my mortgage cheerleader-I did make a spreadsheet already with the added $47 towards the mortgage. It would let me pay off the mortgage 1/2 month sooner but I probably won't put the money towards the mortgage (scandalous!). I'll use it to visit family.

Sallie's Niece-I haven't totally given up on marriage but it seems like the guys out there are divorced with grown kids and not interested in a second family. And hopefully they have their own assets/house/investments (if they didn't lose it all in the divorce).

Over the cubicle wall-I believe I have a small policy through work too but I don't plan on working too many more years.

Anonymous #3-That is exactly the scenario I want to avoid! I am afraid I won't be able to get it later if I need it.

I think I have decided to keep the smaller policy and cancel the larger one. That would free up $36 a month but still give a future spouse some financial help if something happened.

Anonymous said...

I am single with no human dependents. I have considered buying a small life insurance policy so my family can afford to bury me but the smallest I can find is $50k. I'm really overweight and no one will insure me. I hope to build enough up in savings so that I can be self insured.

Lizzie @ her homeworld said...

Not put it towrds the mortgage!

Thud, Lizzie hits the floor in a dead faint........

Daizy said...

christine-I am pretty much self insured now...except if I had a lot of medical bills. I would hope my bills wouldn't drain my whole nest egg. Then my family would have to pay for the funeral and get nothing except my cat.

Daizy said...

Lizzie! Are you ok??? I know it's a shock but trading my grocery money for my plane ticket is a little crazy.

Please don't kick me out of the mortgage club!!!