- Life insurance is an essential form of protection for most people.
- However, life insurance is only necessary for a limited time.
- Coverage can be dropped when certain milestones are reached, including reaching retirement age and having adult children.
Is it time to drop life insurance coverage?
Almost everyone needs to buy life insurance coverage. Otherwise, the loved ones who are depending on their income or services would be left in a terrible situation if an untimely death occurred and no money was available to pay the bills or to pay someone to provide those same services.
But, while everyone needs life insurance sometime, no one needs a policy to be in place forever. In fact, term life insurance is the best coverage option for most people, rather than a whole life policy, since whole life plans cost a lot more for unnecessary permanent coverage.
The big question, though, is how policyholders can determine how long they will need life insurance coverage, so they can decide how long their term length should be. To make this decision, it's a good idea to watch for three signs that coverage is no longer needed.
1. Your kids are grown
Many people purchase life insurance to ensure that their kids can be provided for even if something happens to them. Raising kids is very expensive and educating them is even more costly. So, it makes sense to have a policy in place until children are grown and have completed college and are off on their own.
Once kids are fully grown up and independent, though, then life insurance may not be necessary anymore -- unless a spouse is still reliant on income or there are aging parents to care for.
2. You've retired
Income replacement is another primary reason to buy life insurance. People buy a policy in order to make sure their family can keep paying the bills if they die and their income disappears.
But, at some point, people stop working and start relying on their savings in order to support themselves. At this point, there may not be anyone reliant on their ability to earn a paycheck so it may no longer make sense to buy life insurance.
It is important, though, to consider how a spouse will fare if the deceased person's Social Security check stops. While the surviving spouse gets to keep the larger of the two retirement benefits that either person was receiving (thanks to Social Security survivor benefits), the household will go from two checks to one.
If there's insufficient money to live on when this happens, life insurance may need to remain in effect for a little longer.
3. You have enough wealth that your family isn't relying on your income
Finally, the last big sign that no life insurance is needed anymore is when the policyholder has enough wealth to provide for loved ones without a death benefit paying out.
The purpose of life insurance is not to make people rich -- it's to make sure their lifestyle doesn't become unmanageable due to an untimely death. If there's enough money to pay for whatever surviving family members need, then there's typically no reason to keep life insurance coverage in place (unless it is purchased as part of a broader estate-planning strategy, such as to provide tax-free income or to cover the cost of estate or inheritance taxes).
If any of these three signs apply, then it may make sense for life insurance coverage to end since a policy will no longer serve the purpose of protecting loved ones from hardship.
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