How to Unlock the Potential in Your Life Insurance Policy
I decided to sell my motorcycle the other day.
There wasn't anything wrong with it. It was a beautiful bike and it was in really good shape. It had low miles and ran well. The reason I sold it was because it didn't suit my needs anymore.
I bought the bike back in 2005 and a lot has changed since then. The biggest change was that I am now in my 50s. When I bought it I was in my 30s. That bike was perfect for the younger man I used to be but somehow it wasn't quite right for the more ‘mature' man I had become.
Letting go of that old friend was challenging but there was a nice benefit. Once I found a buyer, I received several thousand dollars for the bike. And those dollars are going to be much more useful than a dusty old motorcycle that I no longer need or want.
For many of us, there is a similar opportunity with our life insurance policies.
Do I need Life Insurance?
As we approach retirement, our need for life insurance diminishes. This is because once the kids are grown and gone and the mortgage is paid off, most of us no longer need life insurance.
Canceling your life insurance is no small matter however. You will want to carefully think this through before you act. But if you decide this is a good move for you and your family, canceling your policy could unlock an asset that could be used for better purposes. Many people use it to supplement their retirement savings . It could even help you get back on track if you've fallen behind .
The first step is to see what kind of life insurance you have , to see if this will work for you.
There are basically two types of life insurance; term and permanent.
I am a big fan of term insurance. Term is inexpensive, relative to other kinds of insurance. It can be purchased in five year blocks so that you can cover the number of years you think you'll need it for. Because of these costs and benefits, term is a great choice for a young family.
However, term insurance does not have a cash value. This is in part why term is less expensive than other insurance products. So, if you have term life insurance, I'm sorry but this idea will not work for you.
But if you have permanent life insurance you may be in luck.
Permanent insurance comes in a variety of forms. You might have whole, universal or variable life insurance. (Read this article, "Permanent Life Insurance" for more details) . If you look at your statement, you should be able to easily identify which type you have.
Permanent life insurance is designed to provide coverage for your entire life. It does this by adding an investment component to the policy. The idea is for this investment portion to grow to a large enough value so you can stop paying the premiums and have them paid out of the investment portion of the policy itself.
But if you find yourself at a point in your life where the reasons for buying life insurance no longer exist, it might be in your interest to cancel your policy and use the proceeds for other purposes. The value that might be unlocked could be anywhere from a couple thousand to tens of thousands of dollars. It all depends on the policy you own and the amount you have been paying.
But if you decide that you no longer need the protection your life insurance was designed to cover and that the cash value is free of surrender charges, you may find yourself in a situation like me with my motorcycle.
Maybe the best thing for you and your family to do is to let go of that old policy , unlock the cash value and redirect those dollars towards an expense that is in line with your current goals, rather than those from the past.