Get rid of life insurance?

**mudskipper** · 16 March 2016, 17:45

Originally posted by d000hg View Post

I mentioned in a couple of other threads that I am in line for a fairly substantial inheritance in the next few months, and am trying to plan my financial affairs accordingly.

One thing I'm wondering about is whether we should cancel our life assurance policies. The way we have it set up is on what each of us would actually need if the other died:

- I have only a small policy on my wife because my family are (were) fairly well off and I could rely on them if I needed support, and/or I knew I would inherit quite healthily. Plus I earn a fair bit.
- There's a much larger policy on my life (£300k IIRC) because my wife earns less, would realistically need more time off work, and doesn't stand to inherit much from her family. Should I pre-decease her, there was no guarantee she'd inherit anything from my family

Given that we would not need any additional help should one of us die early, isn't it sensible to get rid of the policies once inheritance has been completely finalised? £50pcm we could be enjoying or saving or putting towards private medical - which now seems a more useful way to spend the money?

It's entirely up to you.

Depending on the policy, if the cost is averaged over the whole policy, it's probably worth keeping as to cancel and take out a new policy is likely to cost a lot more as you're now older.

**d000hg** · 16 March 2016, 17:49

I just wondered if I'd missed anything obvious.

There's the argument we already spent money on it but then maybe better to cut our losses - whole point of insurance is to cover a loss you couldn't afford.

**Uncle Albert** · 16 March 2016, 18:20

A friend of mine died last year aged 54. He had three teenaged children, a small mortgage and some savings. What he did have was substantial life insurance which has meant that his wife is now comfortably off for the rest of her life and has no mortgage or debts.

It made us re-think our life insurance. If I died tomorrow I'd want my wife to be abel to live off what I left for her and for there to be enough for my children to have financial help later in their lives.

**WordIsBond** · 16 March 2016, 18:40

I'd say if you drop your life insurance because you don't need it any longer, that should push your risk tolerance on your investments quite a bit lower. One of the big reasons for life insurance is to clear the mortgage -- if you drop the insurance, I'd strongly encourage clearing the mortgage with some of your cash.

Life insurers' portfolios are typically heavily invested in gilts and other very safe instruments. They HAVE to have the money. And they have to have a percentage of it in very liquid investments, too, so they can get at it. You'd need to do that on a smaller scale -- money that would be very safe AND available for your wife.

One reason to keep the life insurance is it forms an investment. I have insurance I don't need any longer, but at this point, it is a relatively inexpensive way to boost my kids' inheritance if I kick off. Sure, if I stick around long enough to be a nuisance to them in my old age, they won't get anything out of that investment. So there's a risk, like with any other investment, that it doesn't pay off. Is that risk worth it? Depends on a lot of factors -- how many kids you have, how much you'll have to leave them without the insurance, etc.

If it is just to make sure your wife is amply secure, and you have the funds to do that anyway, then it seems unnecessary. If the funds fall a little short of that, or you have reason to boost how much you leave behind, then you have to look at the investment value of it.

Obviously, you could drop your wife's insurance and keep yours, or reduce one or both of them.

**SueEllen** · 16 March 2016, 18:47

Originally posted by d000hg View Post

I just wondered if I'd missed anything obvious.

There's the argument we already spent money on it but then maybe better to cut our losses - whole point of insurance is to cover a loss you couldn't afford.

Depends what you are investing the cash in and how long.

If you aim to tie most of the cash tied up for say 10 years then keep the life insurance.

If one of you unfortunately drops dead then the remaining spouse will not have to panic about liquidating assets especially if the stock market/property market has fallen.

**mudskipper** · 16 March 2016, 18:48

AIUI, life insurance with a named beneficiary doesn't form part of the estate for IHT either.

**scooterscot** · 16 March 2016, 19:43

As my IFA once said to me, judge each situation on its merits. You first took out life insurance (I suspect you mean term insurance) for a reason. A cash windfall does not mean that reason will evaporate. The insurance should pay out regardless of your financial position.

I've been keeping term insurance running for the past 10-years+ and I've thought about cancelling it more than once. Never happened though because there's a comfort known that layer of protection exists. What's an hour's rate for that sort of cover? And I don't know if I'd could rely on family for my family when that time comes.

**FrontEnder** · 17 March 2016, 10:01

Keep the life insurance, blow the inheritance on cars booze and drugs.

**ELBBUBKUNPS** · 17 March 2016, 10:41

Another reason to keep life insurance is to pay for any of the inheritance tax due should you die and not want to lumber that burden on your relatives, my life insurance should just about cover the inheritance tax due.

Get rid of life insurance?