According to the Canadian Life and Health Insurance Association, the average Canadian Household owns $432,000 of life insurance coverage. That’s a lot of money in play when determining what expenses to keep and which ones to cut in retirement. Do you keep paying premiums on a fixed budget? Do you sever ties and cancel the contract?
Here are a few pointers on how to make the correct decision for your family:
Avoid the “Sunk Cost” Fallacy
The idea behind the “sunk cost” fallacy is we, as humans, have a behavioural tendency to overvalue stuff that we’ve invested time or resources into already. “Past You” has paid premiums for years or even decades; that makes it easy to feel like you’re owed something in the future. But “Present You” has a choice on how to spend future dollars that should be independent from historical contributions. We can’t un-spend those dollars. The past is truly in the past.
That life insurance policy has likely done its job all along. It has given your family peace of mind and assurance that your passing wouldn’t be financially devastating. Your decision on what to do next shouldn’t have any ties to what has happened in the past.
Re-evaluate Your Insurance “Need”
How much insurance would your family need if you passed away today? What assets do you have that will fill the financial gap? How much tax or debt will need to be collected and where will that money come from? Are there certain financial gifts you wish to leave behind?
These questions are fundamental to making a decision on your insurance policy. If you’re already in a position to fund all of your estate goals and obligations, maybe you don’t need to own insurance anymore. Maybe you want to achieve a particular outcome that is only attainable by maintaining the insurance. In any case, you need to know how your estate will unfold to determine if a cash injection from an insurance policy will still be beneficial.
Ask “What Can My Policy Still Do?”
Many life insurance policies come with options. Options to increase or decrease coverage. Options to extend or prolong the life of the policy. Perhaps even options to increase your retirement income. Get all the data on the table in front of you to determine if your existing policies can meet your needs today.
At the end of the day, choosing to maintain OR end your relationship with life insurance is perfectly OK. If saving the premium payments each months gives you financial peace of mind, it is worth it! If continuing to own life insurance for the benefit of others helps you sleep at night, it is worth it!
The choice is uniquely yours to make, so long as it’s an informed decision and comes from a place of control. I’ve never met a family that didn’t support a parent’s decision to own or cancel insurance. Their love and support in your decision making should give you peace of mind regardless of the outcome!
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