I recently made the momentous decision to cancel my life insurance policy. I had purchased it when I got married and had dutifully paid the premiums for the last 36 years. I had an inflation-adjusted term life policy so every few years, the amount of life cover increased but so too did the premiums. At the time I cancelled the policy, the amount of cover was over $1m but the annual premiums had also risen to many thousand dollars.
I am in the fortunate financial situation where there is no debt and if I died tomorrow, my wife and non-dependent kids would not suffer financially if there was no life cover. However, as an experienced financial adviser, I am fully aware of the huge benefits of life insurance so wanted to ensure I was making the right decision. Therefore, I followed the same four step process I have advised my clients to do when in the same situation. This is:
- Check with your spouse that it is OK to cancel the insurance policy as there is an adage that no beneficiary ever thought the insured had too much life insurance. I needed to ensure my wife was comfortable with potentially missing out on the million dollars. Fortunately, my wife was happy with me cancelling it as she immediately started to think of how she could spend each year the large sum we had previously been paying on the insurance premiums.
- Check with the kids to see if they want an investment. It is a fact that dying is a ‘when’ not an ‘if’. Statistically, I will live for another 25 years and the total amount the kids would need to pay if they became the owner of my life insurance policy and continued to pay the premiums would be far less than the $1m they would receive upon my death. In fact, I even gave them a one page summary of why this would be such a fantastic investment. Over a 25 year period, they would pay approximately $100,000 in premiums but get a pay out of over $1m. I thought the kids would leap at the opportunity of getting a guaranteed investment. It is guaranteed as I will definitely die and all they need to do is continue to pay the annual premiums. Surprisingly, the kids thought my idea was a morbid one and didn’t want to take over paying the premiums as they “didn’t want to profit from my death”.
- Check with your doctor. Get a health check before cancelling the policy. I didn’t want to be in a situation where I cancelled the policy and then found out I was suffering from something that would cause a premature death. So off I trotted to the doctor to obtain a wellness check. The good news is he diagnosed me as being really fit and healthy for my age and barring bad luck or an accident, I still have many more years in front of me.
- Check with the bank. It is common for people to have used their life insurance policy as some form of security when borrowing money. Those loans may have been paid off but not fully discharged so the fine print may state that any cancellation of insurance used for the earlier loan needs to be notified to the bank. Fortunately in my case, not only had the loans been paid off but they had been fully discharged so in my case, an email to the bank was not required.
If you are thinking of cancelling or in any way amending your life cover, then seek guidance from one of the team at Milestone.
David Greenslade, Chairman Milestone Direct Ltd