I’m in my 50s with a $3 million term life insurance that I don’t have a need for – should I keep or cancel it?

Life insurance is an important purchase when you are young and have people depending upon your income. As you get older, however, continuing to pay premiums for insurance coverage can begin to make less sense.

One Reddit user is wondering if they have reached the stage of life where they should get rid of their term life insurance coverage. The Redditor is 55 with a wife and two children. He has $7.5 million in liquid assets, a paid-off home, and fully-funded 529 accounts that are intended to cover the cost of college and which aren’t included in his liquid assets. 

Given his current financial state, he’s wondering if he should keep paying the $2,900 annual premiums for a term life insurance policy with a $3 million death benefit. So, should he keep the insurance or get rid of it?

Term life insurance isn’t necessary when you’re financially independent

Term life insurance, unlike whole life insurance, is not an investment vehicle. It does not acquire a cash value. You pay premiums solely to protect your loved ones and make sure that they have the money they need to maintain their standard of living if something happens to you.

In this particular situation, the Redditor’s family would not need the $3 million death benefit to afford their bills if he passed away. With $7.5 million in liquid assets, a paid-off house, and college covered, there would be no financial distress if the poster died in the coming years. 

Because life insurance isn’t really necessary anymore, the Reddit poster could very easily cancel the policy and there’s an argument to be made that it’s a waste of money.  

Term life insurance is a bargain when purchased at a young age

Although there’s really no need for the Reddit poster to keep life insurance in place anymore, it’s also worth remembering that a term life policy is much cheaper if it is purchased when you are young than if it is purchased when you are old. That’s because the chances that the policy will pay out increase as you get older.

The Redditor bought the term life policy at a pretty young age to be paying only $2,900 in premiums for the chance of a $3 million death benefit. His premiums are now locked in until the term expires, so he’s effectively paying less than the current market rate for his coverage.

He has nine more years left on his term life insurance, which means he will be paying a total of $26,100 to keep the policy until it comes to an end. However, if he were to pass away, his loved ones would get $3 million. He may decide it’s worth continuing to pay that relatively small sum for the chance that his family will get that big payout — even though they don’t really need it. 

One Redditor responding to the thread pointed out that there’s around an 11% chance of the insured poster dying in the coming nine years while the policy is in place, so paying $2,900 per year to keep the coverage in exchange for an 11% chance of $3 million may not be the worst investment.

A financial advisor could provide more insight into this question,  and talking to one might be a good idea to make the best choice.

Ultimately, though, what is clear is that the original poster to the thread should not renew coverage and doesn’t need to keep a policy in place anymore unless he figures it’s worth the gamble that the $2,900 annual premiums might very well lead to a payment that’s much larger than the $26,100 he puts in.