Q. I own an Asteron Term Life insurance policy on my wife. She is 50, I am 64. Our children are independent. The policy has no surrender value and would presently pay about $600K on my wife’s demise. It was taken out in Sept 1993 for reasons that prevailed at the time. We own our home. Is it possible for me to access some of the payout figure by re-assigning the policy? Or by other means? If so, what are the pitfalls?
A. A Term Life Insurance policy pays out a lump sum only on the death of the insured person whilst the policy is in force. If your wife survives until the expiry date of the policy at age of 85 or you cancel the policy, you will receive no pay out. There is no cash value to the policy unless your wife dies whilst the policy is current. In the event of your wife’s death, proceeds would be payable to you tax free.
Sometimes Term Life Insurance policies will have added features such Total and Permanent Disability which pays out a lump sum benefit on your inability to work again. These benefits usually expire at age 65.
Term Life insurance premiums are either Stepped or Level Premium contracts. Stepped premium contracts become progressively (prohibitively) more expensive as you get older. With Level premium contracts, the premiums do not change but are more expensive in the beginning. Your wife may outlive your capacity to afford the premiums!
The purpose of insurance is to ensure that in the event of death or disability that money is available to maintain the status quo or at least make things financially manageable for those left behind. If you originally established the insurance to discharge debt on the home and provide funds to look after the kids, one could argue that as your home is now debt free and the kids are independent that your Insurance needs have changed and the cover may no longer be necessary.
Before making any decisions, assess your personal circumstances, determine what the purpose of retaining the insurance is and determine if you still have an insurance need. Get advice on your existing insurance policy to ensure it remains appropriate to your needs.
This article was origianlly published in The Australian