Is it ever a good idea to cancel or terminate a life insurance policy?

My wife and I are ready to retire debt-free. When does it make sense not to have life insurance? Or, should you always have life insurance?

Retirement, Life Insurance
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The way I think about life insurance is that fundamentally, it serves the purpose of income replacement. Therefore, you only need coverage for as long as you and your spouse are working. I see a lot of people who have been oversold on their life insurance policies and have coverage until they are in the 80s or beyond, and in my financial planning world the only person who benefits from this scenario is the agent who sold the policy and received a higher commission for a longer term. Your retirement plan should include income streams such as Social Security, pensions, and portfolio withdrawals that will preserve your lifestyle for as long as you need.

Some sophisticated estate planning techniques use life insurance policies to reduce the size of the taxable estate or distribute wealth to beneficiaries more effectively, but these situations are relatively rare. Nor is life insurance a good investment vehicle, as many "cash value" policies such as whole or variable life claim to be. The raft of fees associated with cash value policies often negate any benefits they may have, and professional investment management of this same money often yields higher returns. Without seeing the details of your policies and knowing your personal financial situation, it does seem like you should consider cancelling any policy you may have!

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