• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

When and How to Cancel Life Insurance

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

The right time to cancel life insurance is when you no longer need it. That may seem like a smarty pants response, but I’m completely serious. Maybe if I share a story or two with you, you’ll see what I mean.

Jean bought whole life insurance years ago in order to pay estate taxes. (To understand why, please read term life insurance versus whole life.) She wants her children to inherit her home when she dies. Since most of her estate is tied up in her home, she realized that she had to buy the coverage in order to provide liquidity to pay estate taxes when she dies.

But now she’s older and her main objective is income. And she desperately needs to reduce her outflow. Also, her house has dropped in value. While nobody knows what estate tax rates are going to be when they die, she’s made an educated guess that she’ll probably be below the taxable estate threshold.

On top of that, she realizes that her children don’t have the resources to hold on to her beautiful home once she goes. They’ll have to sell the home anyway because they won’t be able to afford the property tax let alone the upkeep. So in summary:

a. Her objective changed.
b. The tax laws have changed.
c. Her children’s capabilities have shifted.

This all adds up to one thing: time to cash in her life insurance policy and enjoy life. When she dies, the kids are going to sell the house anyway. The life insurance doesn’t help avoid that. And she needs the income that she’s spending on insurance premiums so she can party.

Here’s another illustration.

Tom and Nancy bought life insurance years ago. Why?

Well…Nancy needed insurance on Tom since he was the main income provider. Tom didn’t really need insurance on Nancy, but the agent was probably really slick and convinced him that he did. They bought term life insurance they thought was inexpensive that ended up being very expensive.

Over the years, the term premiums increased. Before they knew it, the annual payments on Nancy’s insurance were enough to pay for a cruise to Alaska – for the two of them.

The reality is that Nancy never needed life insurance. They finally realized it when they ran their financial plan.

In summary, you should examine every expense – especially large ones. Life insurance is a tool – not an ornament. If you need it, fine. I’m a huge fan. But make sure you carry the right kind of insurance and don’t spend more money than you have to on life insurance. And finally, if you no longer need it because your situation has changed, dump it quick…(just send me a postcard from Alaska, will ya?)

Before you take off on your cruise, make sure you check out this week’s Pilgrim Posts on Parade:

  • Green Panda Carnival of Personal Finance – Nerd Wallet
  • Modern Tightwad hosts the Festival of Frugality
  • Are Personal Credit Cards Better for Your Business? – Free From Broke
  • Darwin’s Money – Two Years of Unemployment Insurance…How Much Is Too Much?
  • Stay on Top of Your Bank – Ellie
  • Bliss Box Quiz – The Little House
  • Joe Taxpayer – Roth Conversion Fail
  • Monevator – What to do now you can’t buy National Savings Certificates
  • Invest it Wisely.com talks about the difference between a fixed and variable rate mortgage.
  • Canadian Finance – Reverse Mortgage Benefits in Canada
  • Green Panda Treehouse.com shares how to have cheap summer fun.
  • The Digerati Life – Online Bartering Got this Kid a Porsche
  • Moolanomy – How to Spend Less On Your Pets
  • Can a Student Open a Roth IRA? – Oblivious Investor
Tweet
Pin
Share

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Comments

  1. DIY Investor says

    July 24, 2010 at 3:25 AM

    Good post. People sometimes hold on to insurance they don’t need through pure inertia. These are the kind of things that need to be reviewed on an ongoing basis. If you wouldn’t buy it today get rid of it.

    Reply
  2. Evolution Of Wealth says

    July 23, 2010 at 8:58 AM

    For Jean shouldn’t there be a lot more to this story? It sounds like she probably had a permanent policy with cash value built up. Might she do a reduced paid up policy, to cut expenses and still be able to leave some liquidity to give the children the six months to a year it could easily take to sell the house? Or maybe even generate tax free income from the life insurance policy?
    If she just cashes it in there might be a big tax bill. There’s also the 1035 option?

    Reply
  3. Little House says

    July 23, 2010 at 7:16 AM

    Thanks again for mentioning my link! I’ve included your link on mine. 🙂

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a Certified Financial Planner™ with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Most Helpful Posts

  • Term vs Whole Life - Which Is Best For You?
  • Who Should Buy Guaranteed Life Insurance?
  • Is Life Insurance For Children A Good Idea?
  • How To Get The Cheapest Term Life Insurance
  • How To Get Inexpensive Senior Term Life Insurance
  • How To Buy Term Life And Save 70%
  • Do You Need Life Insurance At All? Maybe Not.

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2021 All Rights Reserved