I once noted that someone who had read my article on “Why you need life insurance” prompted me to do a piece on “Why Nigerian firms need key person or keyman insurance” following his comment on the “Why you need life insurance article.” Yet again, another reader by name, Waheed, (last name withheld) made a comment after reading the “Why you need life insurance” article. In his comment, Waheed said, “Do I need to cancel my term life insurance? My daughters are graduates and working. Do I get my money/investment money back?”
This article was written to answer his question but some of the items are presented in a general way so that others, not just Waheed, will benefit from it.
Why you should not cancel your life insurance policy
It is not advisable to cancel your life insurance policy because even though it may seem that you no longer need it since your kids or dependents have all grown up and are well to do. By cancelling it, you have basically lost all the premiums you have paid. On the other hand, one may argue that or ask why you should continue to pay premiums for a life insurance that you do not need, literally. Both arguments have their merits but you can benefit from both, by managing your life insurance policy. Even if your kids have grown and on are their own, your spouse can benefit from your life insurance should you die before him or her, and the proceeds of the life insurance policy can become handy and helpful in financing your burial arrangements and final expenses. At least, that is one reason to still keep it.
Whole life Vs Term
Your life insurance may even be self-terminating if you have a term insurance rather than a whole life insurance. A term insurance is a type of life insurance policy that ceases to exist after a certain number of years or after your death, whichever comes first. If you are 50, and you sign up for a 30-year term, it means that at age 80, if you are still alive, your life insurance automatically ceases to exist and you will not be required to pay any more premiums. So, if you have a term life insurance like Waheed does, all you need to do is let it terminate if you think you do not need it.
Reduce the coverage or size
As your need for life insurance protection decreases, you can ask the insurance company to reduce the size of the protection. Let us say that you have a life coverage of N10 million for which you are paying a monthly premium of N10,000. But because your kids have all grown up and doing well on their own, you can reduce it to say N1 million. This reduction should also reduce the premium to something like N1,000 monthly. In that case, if anything happens to you, your spouse has at least N1 million to fall back on.
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Utilize the cash value of your life insurance
Some life insurance policies like universal, whole life, or variable life insurance, have cash value. Such policies charge higher premiums because the insurance company places part of the premium in investment accounts. It is this investment portion of your life insurance that is the cash value of the life insurance policy. Find out if your policy has any cash value, if so, find out the conditions under which you can withdraw such cash value, and if you do meet the conditions, take advantage of the growth in your investment and withdraw the cash value, if you have to.
Convert from term to whole life
It is possible that at the time you bought your life insurance, you thought you would not live past a certain age based on the genealogical and demographics of your family history or because the premium on term life is lower than whole life. As time passes, you may begin to think that you may outlive your term life, the best thing to do therefore is to convert from term to whole life at a reduced coverage. By so doing, you may end up paying the same premium or even lower for a life coverage. Let us say that you had a 30 year term of N10 million coverage for a monthly premium of N7,500, as you age and your family circumstances indicate that you do not really need a life insurance, you can convert the term to a whole life with a coverage of N1 million, which most probably will come with a lower monthly premium.
Use the surrender value
Some life insurance policies have surrender value. What this means is that after some years, if you feel that you do not need the life insurance any longer, like Waheed thinks, you can surrender it to the insurance company for a surrender value payment.
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Read between the lines
How you manage your life insurance depends on what the policy agreement contains, especially the fine prints. Read your policy, understand what your options are, and manage your life insurance accordingly.