Is it advised to minimize life insurance cover as investments grows over the time?
I am investing for retirement. I have covered myself with term/life insurance. I understand importance of insurance; that is not what I am asking here.
Premiums paid for insurance are expense. Insurance amount helps dependent family members. If I reach certain investment level, those investments play the same role. Assuming no debts, insurance seems useless expense then after.
Suppose (numbers are for example only) I buy life insurance cover of 1,00,00,000 with premium say 15,000. My total current investment value is 30,00,000. After 15 years lets say, my investment value will be 1,00,00,000. So after 15 years, should I reduce my life insurance cover? This will save me on some expenses.
If this is not advised, why? What am I miss-understanding then?
UPDATE:
I am aware about this question: Is permanent life insurance necessary in retirement?.
I am not asking about “after retirement”. I am asking about when I am still earning and still planning to continue work for next 10 years lets say. Also, I am not asking about discontinuing complete cover. I am asking about minimizing it looking at the investment value grown by that time.
If one buys term life insurance, it is pretty darn cheap. One can purchase x year level term, where the premiums stay constant over x number of years. Some people recommend stacking coverage, so as wealth builds some policies can be dropped. As an example lets assume that you have determined that you need 1,000,000 in coverage and you anticipate a 100,000 growth in net worth per year.
You may structure your life insurance like this:
500,000 20 year level term
300,000 10 year level term
200,000 5 year level term
In year 5 that person should be worth 500,000 more than they are today. So yes, the could reasonably drop half of there coverage, but as D Stanley points out we want a safety buffer and to account for inflation. Same kind of thing in year 10 and 20.
So yes it can be done, and yes it could be advisable. However, always error on the side of caution. Do not negate the emotional side of this. Will the surviving spouse be able to go back to work within a year? Will they be able to earn as much? Will they need time (and money) to heal?
You need enough life insurance to cover the expenses of those that rely on your income. If your investments grow to a point where they can live of of that, then yes you can reduce your life insurance needs (its called self-insured). However, I would not cut it too close. Your investments will be more volatile than the insurance, so you need to be sure to assume the worst for your investments so your family does not suffer despite your good financial planning.