Term life insurance policy holders or owners of poorly performing universal life insurance policies which were funded with minimum premiums, may find that the premiums now required to keep the policies in force are rising exponentially. This is a burden to many retirees who are simply trying to reduce their living expenses to accommodate retirement incomes and/or escalating healthcare costs.
Requests to surrender an in-force life insurance policy often originate due to changes in family circumstances. Life insurance policies purchased to ensure that children are financially able to attend college despite the premature death of a parent are no longer necessary. Those children may now be grown with children of their own to educate. Life insurance purchased on the breadwinner to provide an income to a beneficiary may be entirely unnecessary if the spouse has predeceased the policy holder.
Why do Retirees cancel their term life insurance?
Because they believe it’s their only option and they can’t afford the payments anymore.
It is not only in the family market where circumstances change rendering a life insurance policy unneeded. Changes are frequent in the business life insurance market as well. A key executive on whom an employer maintained a substantial key person policy may have retired, or partners who had maintained life insurance policies on each other to fund a cross-purchase buy-sell agreement may have left the partnership. Businesses sell and there are many other situations where a life insurance policy becomes simply unneeded. When a policy holder is considering the sale of a term policy for a lump sum payment they should first:
- Absolutely weigh the benefit of selling the policy against their beneficiaries’ future financial needs
- Absolutely discuss their life expectancy with a qualified physician as a baseline
- Absolutely have the term life insurance policy valued as a life settlement