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  Ask Dr. Don By Don Taylor, Ph.D., CFA, Bankrate.com    

Weighing costs, benefits of term life insurance

Dear Dr. Don,
I took out a small term life insurance policy through a professional association I once belonged to. The policy is about 15 years old. It is worth $18,750 upon my death, and cancels at age 70. I am 48 years old. This policy costs me $75 per year. I do have other insurance policies through my current employer and other outside sources. My question is: Should I continue paying on this policy or cancel it and put the $75 per year someplace else?
Thank you,
-- Glenn Gleaner

Dear Glenn,
A term life insurance policy doesn't have a cash value attached to it so the $1,125 you paid in premiums over the past 15 years is a sunk cost, leaving you with only a decision about the money you'll pay in premiums over the next 22 years. I'm assuming that this policy is a level term policy where the premiums don't change over the life of the policy.

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For this type of policy, the cost of $4 per thousand is above the cost per thousand quoted on Insure.com for the lowest cost term coverage for a $100,000 policy using either 20-year or 25-year level term quotes for a 48-year-old male with no health risks. Add some weight, blood pressure, cholesterol or cancer concerns and the cost of the coverage is right in the ball park with the Insure.com quotes.

Do you need the coverage? If you're underinsured, then it doesn't make sense to drop the coverage at this point in time. You can always drop it later as your needs change. That's what term life is designed to do. The $75/year you're saving by canceling, if invested, would grow to $2,900 over 22 years at an after-tax return of 5 percent. I'm not an insurance actuary, but that seems like a fair trade-off for $18,750 in insurance coverage over that time frame.

Access the insurance calculators from Bankrate's calculator home page to use the Ask Bankrate worksheets: What type of life insurance do I need? and How much life insurance do I need? The worksheets will help you decide whether you need the additional coverage.

-- Posted: Sept. 14, 2004

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Convert term policy before it expires
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