Life insurance after children leave home
[social_share]Life insurance is often taken out so as to cover dependent children, and it can be a question as to what to do with the insurance after the children have left home.
Much life insurance is taken out over the long term, partly because it’s cheaper in the long run. It’s also more certain, as the premiums stay the same even if the insured person is diagnosed with a serious medical condition after the policy is purchased.
This can lead to people overestimating how long they’ll need life insurance. Children may not be dependent as long as the parents anticipate. They might not want to attend university, or they may start an excellent job immediately after leaving university. This leaves parents with a seemingly unnecessary life insurance policy, and there are a number of options to consider.
The life insurance may still be useful, as there are other situations the policy covers. For example, even if the adult children have left home, they may still be partially dependent on their parents. Some children ask their parents to guarantee their home loans, and in these cases life insurance can still be useful, protecting the mortgage rather than the children’s direct future. Or the surviving spouse may face a vast reduction in their living standards. There are also other costs such as funeral costs that can be covered.
Even if these needs are covered by savings or earnings, the life insurance may still be a good investment. Life insurance usually has the same premiums at the beginning of the policy than it does towards the end. However, the life expectancy is lower at an older age, which means that the life insurance would be far more expensive if it was taken out on a shorter term. If this scenario is followed, the payout will be added to the estate and distributed in the will, as with any other property held by a deceased person.
As long-term life insurance is actually far cheaper towards the end for the equivalent payout than it is for shorter term policies, life insurance companies will sometimes pay customers to surrender their policies. The amount tendered will usually be far less than if the policy was sold to a third-party investor, who will buy the life insurance policy and pay the premiums.
