Finance Blog

When Can You Stop Paying for Life Insurance?

Written by Jeff Rose on April 22, 2013 in Retirement  |   2 comments

Life insurance is one of those topics about which I often hear questions. Many people don’t quite understand why they need to pay for a life insurance policy—or they are afraid that they might eventually need to use one. Most of us want to insure…

life insurance retirementLife insurance is one of those topics about which I often hear questions. Many people don’t quite understand why they need to pay for a life insurance policy—or they are afraid that they might eventually need to use one.

Most of us want to insure that our partner and/or children are taken care of financially should something happen to us, but there’s no need for fear. We purchase life insurance policies to help pay for our funerals and to provide money for supporting those left behind. But what happens when our children grow up and are financially independent, or when our spouse has enough savings and retirement to live comfortably? Do we need to maintain life insurance policies that don’t serve the purpose for which we intended them any longer? In most cases, the answer is no.

Life insurance isn’t meant to fund retirement. When you purchase a policy, you shouldn’t expect to be able to cash it out and use it for income. First, cashing out a policy can come with a hefty tax bill. Second the amount is not usually enough to sustain you for many years. You should instead expect that your policy will be used to help pay for the expenses related to death, including burial and final bills.

There is no magic family situation or age at which point one should automatically stop paying for life insurance. However, once a person reaches retirement age and has been paying on a life insurance policy for most of his or her adult life, the cash value of the policy is probably enough to cover the expenses for which it was intended.

To avoid paying the life insurance premiums while keeping the policy intact, look into the dividends. There comes a point where the annual dividends are higher than the premium. The policy holder can use the dividend amounts to pay the premium due. By doing this, the policy holder does not have to use any of his or her own money to sustain the policy, and the cash value of the policy is not reduced. Typically there will be some of the dividend left over which can be reinvested so that the policy will still grow a little.

If you no longer need the full value of the policy to support your loved ones, you can cash out part of it, tax free. In order to do this, the amount you withdraw must be less than the value of the premiums you have paid so far. You can use the money to help offset any retirement fund shortfalls, to pre-pay for funeral expenses, or to take a vacation. Whatever is left of your policy will be left to your heirs, tax free, after you pass.

Generally speaking, life insurance is created to help provide short-term financial stability. Once you reach retirement age, you should be able to stop paying on your life insurance policy unless you have a huge estate to protect, you start a family later in life, or you purchase a policy when you are older. In these situations, you would probably not be able to stop paying on the premiums for life insurance in your retirement years.

Jeff Rose is a Certified Financial Planner who writes about financial planning topics at Good Financial Cents. His latest project, The Debt Movement, aims to help people pay off $10,000,000 of debt in 90 days. You can join the movement and get a chance to earn some of the $10,000 debt scholarship money by visiting DebtMovement.com.


  1. Janine says:

    What about term insurance. Does the same thinking hold..except there is no cash value in the end..

    • Anonymous says:

      I have a life insurance policy since I started working for the state 30 yrs ago and the value was reduced from $15,000 to $7,500 since I became 70 yrs old and now I retired and still have to pay premiums on it? is this fair?

Leave a Comment

Name :

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.

Retirement Archive

Stay Informed Sign up for our FREE Equifax email Newsletter