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When to discontinue life and disability insurance

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  • When to discontinue life and disability insurance

    59 yo.  Had a heart problem (arrhythmia) a few years ago that has been fixed via cardiac ablation, no reason to think that it will return, feel great again, no restrictions on activities which means I can hike at elevation (14,000+ ft. which I did all last summer) and plan to begin endurance (50-100 mile) mountain bike races again this summer.

    Disability is a small one, about $7000/mo.  Never thought I'd use it until 1.5 yrs ago and I did short term.  Costs around $4100/yr.

    Life insurance-have $2,000,000 policy which will expire in about 2 years and a $500,000 policy that I can keep until age 65.  Larger policy is about $1800/yr and smaller one maybe $1000/yr.

    Net worth of about 4.3 million including with about 3.5 million in IRA's, 401k's, etc, home nearly paid for.  Kids out of college and on their own.

    Still working but plan to continue cutting back hours over the next few years.

    When is enough enough and it's time to stop paying on these policies?  Any suggestions?

  • #2
    I'd drop the disability and keep the life insurance policies for your partner and family until expiration.

    Not to be too morbid but if you think the risk of your death is less than your premium/payout, then cancel, otherwise hold on to them.

    $3600/2000000=0.18%
    $2000/500000=0.4%

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    • #3
      Actually your second policy is until age 65, so that adjusts the calculations. But your first policy is so cheap that I'd just keep it at this point.

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      • #4
        You're insuring against the inability to live your lifestyle without any income. If you're already there, there is no need for the insurance.

        The missing piece of the equation is annual spending. If your needs are $100,000 or less per year, you're easily financially independent and could drop all coverage since you can live off the investments. With $3.5 million in retirement assets, you could spend up to $140,000 a year based on a 4% safe withdrawal rate.

         

         

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        • #5
          Since you are 59 you can easily tap your retirement accounts.  Luckily now the cardiac condition will not increase your health insurance.  I agree with PoF you have enough to quit.  You really do not need disability or life insurance.  You have arrived.

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          • #6
            You certainly do have enough to stop the disability.  You might just think about going from something to nothing, that makes some clients feel uncomfortable since with your health history you won't get another contract issued if you ever wanted it back.  A suggestion you might try this year is to extend out your waiting period to 6 months or even a year, that would probably get you a 15-30% rate reduction.  The other thing you can do now or next year is cut your benefit down.  After a year if everything is all good then cut it more or drop it but this allows you to 'dip your toe' in a bit to see how it feels wrapping up the need for those contracts.
            Scott Nelson-Archer, CLU, ChFC
            303-953-0263 Direct / [email protected]

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            • #7
              Thank you everyone.  I'm seeing Wise Council and receiving it.  Please keep them coming.

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              • #8
                It looks like you are paying about $7000 a year in premiums total.
                I would look at it like this, if you would rather have that $7000 each year to spend on something else besides insurance then drop all of it.
                Like PoF said, you should be able to comfortably live on the $3.5 million at a safe withdrawal rate. If you continue to work some more and earn income instead of withdraw from your retirement fund, then you will be even safer.

                Maybe just another way to look at things.

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                • #9
                  I'm bumping this to see if there are any more thoughts before I make a final decision.  Thanks very much.

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                  • #10
                    The planning goal for life insurance, in general, is to provide a safety net for a premature death until you've built your own. If, according to your plans, you no longer need that safety net (i.e. your wealth is enough to support a joint life expectancy through a 30- or 40-year retirement), then you don't need it. If you are uncomfortable with letting go, keep the $500k while you build a bit more wealth in the next few years. Of course, your spouse/SO continuing to work could affect your decision, also.

                    I concur with Scott @ MD Financial Services advice. He's the expert.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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