Life insurance is a multi-dimensional product. Take Whole or Permanent Life products as an example. You have a death benefit that can be used by your beneficiaries to pay off debt, replace your income, pay funeral expenses, pay estate taxes, pay college tuition expenses—really, anything you can imagine. In addition to the death benefit, with a Whole Life insurance policy you also have a cash value. The cash value can be taken if you surrender the policy and can be borrowed against during the life of the policy.

When you obtain a Life insurance policy during your 20s or 30s, you generally have more bills and debt than you will by the time you reach retirement. In addition, you likely have fewer assets than you do in your golden years so a Life insurance policy is a must for your family. Because of these differences in your financial situation, retirement is a great time to reevaluate the policy you have and decide whether or not it is in your best interests to keep it in force. Here are a few questions you should ask yourself before you allow your policy to lapse:

Do you or your beneficiaries have a need for the death benefit?

If your estate will be subject to estate taxes, you own a business or have income from a straight life annuity, you may need to keep some life insurance throughout your life. Otherwise your heirs will be forced into a position of quickly selling off assets to pay estate taxes, keep a business afloat while looking for a buyer, or finding another source of retirement income.

Are you in good health?

If you decide to let your policy lapse, make sure that you either no longer need a life insurance policy or that you are in good enough health to get a new one with a lower death benefit.

Will your lower death benefit policy really be less expensive?

Your rate per $1,000 of death benefit increases with age and with any chronic health conditions you may have, so make sure you compare the rate of your new policy with that of your old policy before letting your old policy lapse.

Type of policy If you decide that you no longer need your policy your next step will depend on the type of policy you currently have.

If you have a Term policy, chances are your policy is going to terminate somewhere in early retirement. Since you don't have any cash values, there is no vested interest in the policy unless you have a return of premium rider. If you no longer want the policy and think that it doesn't make sense to continue paying the premiums you can simply stop.

If you have a Whole Life policy that you deem inappropriate for your needs, you can surrender the policy for the cash surrender value. If you have had the policy for a number of years, you should be outside the surrender period.
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