Weighing costs, benefits of term life
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?
-- Glenn Gleaner
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.
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
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