Q. My husband and I are both 50 and we both work. We have two kids who will start college in the next few years. We each have $100,000 of life insurance through our jobs, and we both have $500,000 term insurance that will expire in four years, basically while the kids are still in school. To keep the policies going longer, we know it’s expensive. What options do we have and do we really still need the term policies?
— Parent
A. We’re going to assume you originally purchased the life insurance policies to ensure that the surviving spouse and your children would be financially taken care of in the event of one of your premature deaths.
At that time, you calculated that a $500,000 death benefit would be sufficient to ensure that the surviving spouse and/or children would, in combination with your other assets, have sufficient funds to cover their needs.
In order to decide how to best proceed, you would need to make a similar calculation again, said Marnie Hards, a certified financial planner with Aznar Financial Advisors in Morris Plains.
“For example, if you have sufficient funds set aside to cover the remaining cost of college for your children and do not feel as though you need to provide them with financial support beyond that in the event that something was to happen to one or both of you, you might decide that allowing the life insurance to lapse is a reasonable decision,” she said.
If, on the other hand, your children would be left without funds to cover their remaining education expenses or a spouse would be left in a position where they are not able to continue to live in the lifestyle to which they are accustomed, it may make sense to secure new term policies to ensure that you protect your loved ones, Hards said.
You are correct that it would be very expensive to continue to pay the cost of a term life insurance policy after the term expires, she said. For that reason, it would make sense to consider the purchase of a new policy or policies, assuming you are both able to qualify, she said.
“If you do decide that you would like coverage for longer than the next four years, I would not suggest waiting until these policies expire,” she said. “If you are both currently healthy and able to qualify for a low rate on a new policy, I suggest applying sooner rather than later.”
Hards said you could purchase a new policy to supplement your existing coverage for the next four years or completely replace your current coverage, but you should not drop any policies until your new policies are fully in place.
“Keep in mind that it might make sense to opt for a shorter term policy at this time if you just want to be sure that your children’s college expenses would be covered in the event that something were to happen to you,” she said. “The cost of a 10-year term policy will be quite a bit less than the cost of a 20-year term policy with the same death benefit.”
Another option is to check the rates on your group life insurance policies through your employers, she said.
“It may be less expensive to secure supplemental coverage through your employer, if available, than to purchase a new term policy,” she said. “If this is the route you choose, you should make sure that the policy is portable if you leave your employer.”
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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