Term life insurance products can be a very smart financial decision for many, provided the policyholder can afford the premiums. Additionally, other factors, such as the value of certain coverage, should be considered, as well as one’s personal tolerance for risk. Indeed, even with a fat retirement nest egg saved up, one can lose quite a bit of sleep over factors outside of their control and the state they’ll leave loved ones should something happen. 

In the case of a Reddit poster, they’re wondering if they should drop their term life insurance policy due to increasing premiums. Given they’re posting on the r/chubbyFIRE subreddit, and they’re already comfortably retired “at Chubby level,” it’s clear that the couple, who are in their early 60s, can afford the premiums, even with the odd hike thrown in.

Key Points About This Article

• If a life insurance policy gets pricier and less essential with time, it can make sense to drop it.
• That said, there are risks of dropping such a plan in one’s early 60s.

The coverage isn’t vital, and premiums are rising. Is it best to just drop the life insurance policy?

That said, the big question is whether they still see value in having a plan that just keeps getting costlier ($5,000 per year for $1.2 million coverage) with time. Indeed, it seems like the idea of dropping the term life insurance policy is not based on a tight financial situation but on irritation with the higher premiums. Though everyone’s situation will be different, the Redditor specifically noted in their post that their surviving spouse would be fine without the coverage.

I think that pretty much sums up what they should do. If the spouse would be okay without it and there are better places to spend the extra $5,000 per year, I think it does make sense to drop the policy. That said, I would ask a financial adviser just before making any final decisions. If the nest egg is sizeable enough and there are no urgent expected expenditures on the horizon, the rich premiums on a term life insurance policy may not give as much bang for the buck.

Of course, since there’s some doubt about whether the policyholder should drop insurance, I would suggest weighing potential options to reduce the premiums (perhaps less coverage) by dropping it entirely. Given the benefit will be halved by age 65, I’d argue that there’s a reasonably strong case for dropping the policy altogether. 

The risks of dropping a term life insurance policy

In any case, it’s impossible to tell for sure what the right move will be since nobody can foresee the future. The main reason the Redditor is hesitating over potentially dropping the policy is because their father “died suddenly,” just a few years after dropping his policy.

Indeed, that’s an incredibly unfortunate situation and a risk one will have to take if they do decide to ditch their policy. 

Personally, I’m surprised the policyholder would consider dropping their life insurance, given what happened to their father. In any case, the premiums aren’t too hefty for the policyholder. And if keeping the plan gives them peace of mind for mitigating the risks that are very real, the higher premiums may be worth the price of admission.

The bottom line

Either way, deciding to drop a term life insurance policy is a very personal decision that even a seasoned financial adviser may not have all the answers to. Though they can guide you down the path of making the right financial move, there’s no telling if it’s the move that’ll allow you to sleep comfortably at night. If the couple was living paycheck to paycheck, it’d be a different story.

However, since the premiums still aren’t “burdensome,” the couple needs to take their time and make a choice after they’ve carefully thought things over. As always, a financial planner can add tremendous value to the decision-making process.

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