You made a sound decision years ago, you purchased a term life insurance policy after figuring out how much coverage you would need. It could have been because you bought a new house and wanted your partner to be able to pay off the mortgage if something happened to you. Perhaps you had a baby and saw the increased financial burden on your partner if something unexpected happened to you. Whatever the reason was that you purchased the coverage there are some factors that you should think about before you cancel the plan.
The first is to talk to the beneficiaries on the plan and your family members in general. Even if the mortgage you took the plan out to cover is now paid off, you may find during this type of discussion that the death benefit for the plan may be useful to the beneficiaries in other ways now and that they are in fact relying on the money. Financial needs will change over time and just assuming that it’s a good idea to cancel the policy because the original reason for it is gone ignores how life evolves as do the needs of the people that you live with.
You also should consider your health situation. In particular if there has been a change in your health since you took the policy out. If this is the case it may be hard for you to get insurance again in the future if you need it. Look into the options for your existing coverage. Can you reduce the face amount? Is it convertible into permanent life insurance coverage? The benefits associated with a policy that was issued when you were healthy can be really valuable if something has changed in this aspect of your life. You protected your right to lock in a premium using permanent life insurance coverage with the original policy Don’t cancel it without making sure this isn’t in your best interest.
As a final note, make sure you are familiar with any requirements to keep coverage in place. Many separation agreements and child support arrangements will include a requirement that a certain amount of life insurance coverage be maintained until a set point in the future. If the date has passed then the option is yours, if you cancel early you run a significant risk to your estate.
Remember that your term life insurance policy will have an expiry date on it so if you hold on to it beyond that point in time you won’t receive any benefit payment from it. This should carry some weight in your decision as well. We often use the term renewal point (or as you get close to the renewal) as a time to make this decision. If you are facing a renewal premium and your coverage needs have changed, talk about it. You need to have the discussion with your beneficiaries to make sure that they will be okay without the money from the policy. Weigh this against the cost of the coverage and make an informed decision.