In today’s tough economy, people are always seeking ways to cut costs. In many instances, people are doing away with expenses that they feel are not necessary – and unfortunately, life insurance coverage oftentimes falls into that category.
While doing away with your policy may help to free up more funds over the short term, you may want to give it more consideration before you actually cancel your life insurance plan, as the overall consequences could end up having devastating effects overall. In fact, there are many financial planners who feel that when times are tough financially, families may actually be in need of even more life insurance coverage.
Think Twice Before Canceling Your Policy
Although you may not be happy about being saddled with the added expense, the premium that you pay for life insurance coverage could essentially end up being a very small price to pay if your loved ones end up needing the policy’s proceeds. Doing just a quick financial check could even give you an indication of whether or not your family would be in a worse financial situation if the unthinkable were to happen to you.
As an example, if you were to lose your job today, would your family still be able to afford the same house, the same car, and the same activities that they currently do without struggling financially? If the answer is no, then you likely need at least some amount of life insurance coverage in order to replace the income that your loved ones would lose without you.
Throughout our lives, we accumulate more debt than we may realize. Mortgages, auto loans, credit card balances – it all adds up. And, if you were to pass away suddenly, just how much of that burden would be passed along to those whom you love? Even worse, how would they be able to pay these debts without the support of your income?
Even those who don’t have someone depending on their income should consider keeping life insurance in force. Today, the average cost of a funeral can be upwards of $10,000. This, coupled with any final medical-related expenses, could leave loved ones in a financial bind without the monetary cushion that life insurance can provide.
Likewise, life insurance can also be a buffer for large estate taxes that may be due. Even those who don’t possess large estates could be liable for hefty taxation upon death. Yet, a properly designed life insurance plan could help to reduce – or even eliminate – these expenses, avoiding the sale of other assets in order to come up with the needed funds.
Alternatives to Cancelling Your Coverage
If your decision to cancel your life insurance coverage is truly financial and you are simply finding it difficult to pay the premium, there may be some alternatives that can allow you to keep your family protected, while at the same time alleviating the stress of the premium payment.
One option could be to use some of the funds in the cash value component of your policy for paying the premium. Even though doing this may reduce the amount of savings in the plan, it could also keep the amount of death benefit that your loved ones would need intact. (Note that this option may only be used on cash value life insurance policies.)
A second alternative is to keep your policy in force, but to reduce the face amount of coverage. Using this option will provide you with less in insurance benefit, but it will also lessen the amount of premium that you are required to pay. This could help to ease up on your expenses.
For those who are younger and in relatively good health, another possibility could be to convert from a permanent policy to term coverage. Doing so could actually provide you with even more death benefit for less premium.
If you go this route, however, be careful that you have your new coverage in place prior to cancelling your current coverage. You don’t want to run the risk of being without any coverage at all should an unfortunate circumstance occur in the interim.
Certainly, depending on a group plan through an employer is another viable alternative – but only in the vein that it is a temporary form of coverage that will typically end when your employment terminates.