What To Do With An Old Life Insurance Policy You No Longer Need

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When you were younger, a life insurance policy with a large death benefit made sense. You had a mortgage. Mouths to feed. Bills to pay. The loss of the primary breadwinner would have been devastating to your family’s financial security.

Today, things are different. The mortgage has been paid, the kids can support themselves, and your financial situation has never been brighter.

In these situations, clients often ask me what they should do with an old life insurance policy they no longer need. Often, it’s a whole life or universal life policy that has considerable cash value and requires a hefty monthly premium that seems to go on forever.

In my last post, I had cautionary guidance: “Are you absolutely, 100% sure you really, really don’t need your old life insurance policy any more?”

If you answered, “Yes!” to that question, then there are at least 7 things you could do to with that old cash value life insurance policy.

Wait! Don’t Cancel That Old Insurance Policy

Photo by Les Anderson on Unsplash

Years ago, when your kids were little and your mortgage was big, you probably bought some life insurance. If you had a friend or family member who worked for an insurance company, odds are good that it was a whole life policy. These policies often come with a hefty monthly premium that you are going to pay for… well, your whole life.

Today, however, life is different. Your kids have kids of their own and the mortgage has been paid. Your need for life insurance has gone away, but those hefty monthly insurance premiums; they are here to stay.

A question I am often asked is, “Should I cancel my old life insurance policy?”

The Fed Keeps Rates Unchanged

As expected the Federal Reserve voted to keep interest rates unchanged at its most recent Open Market Committee meeting last week. This comes after four rate increases in the Federal Funds Rate since they began raising interest rates in December of 2015.

The Federal Funds Rate remains at 1.25%.  The next FOMC meeting is scheduled for September 19-20 when many Fed watchers predict another increase or possibly a change in tactics.

Reverse Dollar-Cost-Averaging. Is That a Thing?

Last week I wrote about an investing strategy called dollar-cost-averaging – the act of systematically buying more shares of your favorite stock or mutual fund in regular amounts every week or month. Generally, dollar-cost-averaging works best when markets are volatile and trending downward or sideways. With each new investment you end up buying more shares at lower prices, lowering your average cost per share over time.

Could a Dollar-Cost-Averaging Strategy Work For You?

The concept of dollar-cost-averaging – the act of investing regular amounts in a systematic way every week or month – has been around for a long time. If you take $100 from each paycheck and add it to a stock mutual fund in your 401(k) every pay period, you are dollar-cost-averaging. If you add $500 every month to a mutual fund in your IRA, you are dollar-cost-averaging. You get the idea.

When markets decline, especially if they are quite volatile, dollar-cost-averaging can be a great strategy. It effectively forces you to buy more shares when prices are low and fewer shares when prices are high. Every month you continue to add more to your investment plan regardless of whether the market is up or down. This strategy takes the emotions out of investing and can result in a lower average cost per share of your favorite stock or mutual fund.