Life insurance is a vital consideration in financial planning. Thing is: You might not need as much as you think, if anything at all …
This is a guest post from my friend Eric Rosenberg, a personal finance blogger and podcaster at Personal Profitability in partnership with Mason Finance. He writes about personal finance, credit cards, entrepreneurship, and technology.
Life insurance is an important part of a personal finance plan, as it protects your loved ones from a loss of income in a worst case scenario. But your life insurance needs may change over time. If you follow a good savings and investment plan, you can eventually build up so much in savings that you don’t need life insurance any more. That’s a great situation to be in, but what should you do when you reach that point?
Some people just stop paying their life insurance and let the policy lapse, but that can be a costly mistake! If you’ve chased so many bargains you can self-insure, follow along to learn how you can end your life insurance policy with nice payout, even if you are still alive and well.
Why life insurance is so important
Before we talk about why you might not need life insurance, it is important to understand when you should want life insurance. If you are new to the idea of life insurance, here’s how it works and why it is so important.
Term life insurance, the most popular type of life insurance, is a financial product where an insured individual makes a payment every month for a number of years. If the insured were to pass away during that term, the insurance company makes a large lump payment to the policy’s beneficiaries, usually family members of the insured.
Because the insured presumably has a job and an income, the life insurance payout helps the beneficiaries by replacing that income. It could go to pay off a home, help pay for college, and cover living expenses when the insured is no longer around to contribute. It is a grim topic, but an important one.
Compare Life Insurance Quotes the Smart Way
Choosing the right life insurance policy isn’t just about picking the first offer that shows up—it’s about finding the best value for the protection your family truly needs. That’s why taking the time to compare quotes is so crucial. Every insurer evaluates risk differently, which means premiums and coverage can vary widely from one provider to another. With SimplyQuote, you can easily view multiple options in one place, helping you understand the range of policies available and make a choice that balances both cost and coverage. Whether you're looking for a basic term plan or something more comprehensive, comparing quotes ensures you’re not overpaying or underinsuring. It’s a simple step, but one that can make a world of difference when it comes to ensuring your loved ones are financially secure if the unexpected happens.
You can outsave your need for life insurance
If you are a part of the Mighty Bargain Hunter community, you are probably far ahead of most people in terms of savings. In fact, you may be doing so well you no longer need life insurance. That’s a thing!
Life insurance is designed to cover living expenses and other major financial needs through a big payout at the end. If you can save more than that payout and your family’s overall financial needs, you no longer need life insurance. That is a huge financial win.
It isn’t all that common in the United States today, where most people don’t even have $1,000 in savings, but you are not most people! Let’s look at your ability to self-insure to decide if you don’t need life insurance any more.
Calculate your needs to self-insure
Just as you should do the math to decide how much life insurance you need, you should also do the math to find out how much life insurance you don’t need. Consider factors like recurring monthly needs, long-term needs, and major financial goals.
Let’s say you are someone in your 40s and plan to put your child through college. The average annual budget in the United States is just under $64,000 per year, according to ValuePenguin. That is $5,333 per month in expenses. 2017 data shows the average cost of sending a child to college is $57,000. So how does this convert into a financial need?
To cover the cost of living for ten years and the cost of college, you would need a life insurance policy or savings equal to $697,000, not including interest you may earn over that period of time. If you have higher living expenses, want the funds to last longer, or might be sending a child to an expensive, private school, your self-insurance point may be closer to $1 million or more.
How to get paid when ending a life insurance policy
If you have enough in savings that you don’t need life insurance any more, you can stop paying that regular monthly cost and put it into savings or something you value more instead. But just stopping payments on your life insurance is a bad plan.
If you just stop paying, your life insurance policy will lapse. You don’t get anything back from it at that point. It just ceases to exist. But your life insurance policy has some value even if you don’t want it anymore, which is where life insurance settlements come in.
With a life insurance settlement, you can hand over your policy to someone else who will take over payments, but also take any future benefit the policy pays out. This is considered a type of investment to wealthy investors looking to diversify their portfolio. Life insurance policies can actually offer a decent payout at a large scale in the right circumstances.
If you are at least 35 years old and want to find out what your policy is worth, check out this nifty, free policy estimator from Mason Finance.
Don’t waste money or miss out on big opportunities
Paying for a life insurance policy you no longer need is a huge waste of money, as is letting a valuable policy lapse and go to zero. If you have the savings to support self-insuring, you can drop it and turn it into cash in your pocket.
