Life insurance is designed to offer financial protection during critical phases of life. But as circumstances change, there may come a time when continuing to pay for a policy no longer makes sense. Knowing when it’s appropriate to let a life insurance policy expire can help you make strategic decisions about your financial future.
Here are key situations when letting a policy expire might be the right move.
- Your Financial Obligations Have Decreased If you’ve paid off major debts like your mortgage, your children are financially independent, and you’ve built sufficient retirement savings, the original need for your life insurance coverage may no longer exist.
- You Have Other Financial Resources If you have accumulated enough wealth, investments, or other assets to provide for your dependents, the life insurance policy may no longer be necessary.
- Term Policy Is Nearing Expiration Term life insurance provides coverage for a specific period (e.g., 20 or 30 years). If the term is ending and you no longer need the coverage, allowing it to expire—rather than converting it to a more expensive permanent policy—could be a smart financial decision.
- The Premiums Are No Longer Affordable As you age, renewing or maintaining certain types of life insurance policies can become very expensive. If the premiums are straining your budget and the policy is no longer essential, it might make sense to let it lapse.
- Your Beneficiaries’ Needs Have Changed If your intended beneficiaries are now financially secure or their circumstances have changed significantly, maintaining a large life insurance policy may not be as important.
- You Have Adequate Final Expense Coverage If you have a small policy or savings set aside specifically for funeral costs and final expenses, a larger life insurance policy may be unnecessary.
- Changes in Health or Life Situation While it’s generally harder to qualify for new coverage later in life, sometimes a serious health diagnosis or major life change prompts a reassessment. In some cases, redirecting resources to immediate needs might outweigh maintaining the policy.
Important Considerations Before Letting a Policy Expire:
- Evaluate all alternatives: Some policies may offer conversion options or reduced paid-up insurance benefits.
- Consult a financial advisor: A professional can help assess whether you might be better off keeping the policy, adjusting coverage, or exploring other options.
- Check for potential cash value: If you have a whole or universal life policy, it might have accumulated cash value that you can withdraw or borrow against.
- Understand the consequences: Make sure letting the policy expire won’t leave your loved ones financially vulnerable.
Final Thoughts Life insurance is meant to adapt to your needs—not to be a forever commitment if it no longer serves a purpose. By regularly reviewing your coverage and understanding when it’s appropriate to let a policy expire, you can make financial choices that better reflect your current situation and future goals.
