The renewal notice arrives and the premium has gone up again. You are 63. You are paying roughly six times what you paid at 45 for the same cover, the mortgage is gone, the children have their own mortgages, and the annual premium is now a noticeable line item against your retirement income.
So the question arrives, usually for the first time: why am I still paying for this?
It is a fair question and it deserves a straight answer rather than a reflexive one. Sometimes the honest answer is that the cover has done its job and can stop. More often the honest answer is that the amount is wrong rather than the cover itself, and that reducing it solves the problem without giving up something you cannot get back.
This guide sets out when cancelling is genuinely the right call, when it is a mistake people cannot undo, and the middle options that most people never consider because nobody offers them.
What being self-insured actually means
You are self-insured when the financial consequence of your death or disability can be absorbed by your own assets without anyone being left short.
That is a specific test, and it is not about how much you have. It is about the gap between what the people who depend on you would need and what they would actually receive. A person with $400,000 and no dependants may be comfortably self-insured. A person with $1.5 million, a dependent adult child and a business loan may not be.
The calculation is worth doing properly rather than eyeballing:
- What debts would need to be cleared, including any personal guarantees
- What income the survivors would need, and for how long
- What they would actually receive from superannuation, investments and existing cover
- What tax would apply to what they receive
- What one-off costs would arise, including funeral, estate administration and any capital gains tax on assets that have to be sold
If the assets comfortably exceed the need, you are self-insured. If they do not, you are not, regardless of how the balance sheet looks.
When cancelling is genuinely reasonable
There are real situations where continuing to pay is simply buying something you no longer need.
- The debt is gone and the children are independent. The two things most life cover was bought to solve have resolved themselves.
- Your superannuation and investments would fund a surviving partner comfortably for the rest of their life, with the tax position understood.
- There is no one who would be financially worse off. No dependants, no partner relying on your income, no debts that would fall on anyone.
- The purpose has ended. A buy/sell arrangement after you have exited the business, or cover taken out for a loan that has been repaid.
- The premium is genuinely unaffordable and is eating into the retirement income the cover was meant to protect. This is a legitimate reason, though it is a reason to look at the middle options below before cancelling outright.
Income protection is the clearest case of all
If you have retired, income protection is protecting an income you no longer earn. It cannot pay a benefit, because a benefit is calculated by reference to lost earnings, and there are none.
Most policies expire at 65 anyway, but people do pay premiums past the point of usefulness, particularly where cover sits inside superannuation and the premium is deducted quietly from the balance rather than from a bank account they watch.
If you have stopped working, or are about to, check whether you are still paying for income protection. This is the one cancellation in this article that rarely needs a second opinion, though it is still worth confirming the policy terms and any residual benefits before acting.
The reasons people miss
Here is the other side, and these are the arguments that most often change the answer once someone has actually looked at them.
Estate liquidity
An estate can be asset rich and cash poor. Property, a business interest or a share portfolio may need to be sold to pay debts, taxes and costs, and a forced sale at a bad moment destroys value. Life cover provides cash at exactly the point the estate needs it, which is often the real function of cover in later life rather than income replacement.
The tax on super paid to adult children
This is the most under-appreciated point in the whole discussion.
Superannuation paid to a dependant for tax purposes, such as a spouse, is generally received tax free. Paid to a non-dependant adult child, the taxable component is generally taxed at up to 15 per cent plus the Medicare levy on the taxed element, and up to 30 per cent plus the Medicare levy on any untaxed element.
Insurance held inside superannuation can increase the untaxed element, which means cover held in super and destined for adult children can be a comparatively expensive way to leave money. That is not an argument for cancelling. It is an argument for restructuring, and possibly for holding some cover outside super instead. Our guides on tax on life insurance payouts and holding cover inside or outside super deal with the mechanics, and death benefit nominations matter here too.
Estate equalisation
Where one child is taking over a farm or a business and the others are not, life cover is often the only practical way to leave the others something comparable without breaking up the asset. Cancelling it can quietly convert a fair estate plan into an unfair one, and that is a conversation to have with your solicitor before the policy lapses. Our guide on estate planning covers the surrounding decisions.
A dependant who will always be dependent
Where a child or other family member has a disability and will need lifelong support, the calculation is different in kind. Cover in this situation is usually the last thing to go, not the first, and often needs to be coordinated with a special disability trust or similar arrangement.
Blended families
Life cover is frequently the mechanism that lets a second spouse be provided for while children from a first relationship also receive something. Remove it and the two objectives start competing for the same assets.
You almost certainly cannot get it back
This is the one that should give everyone pause. Cancelling is instant. Reinstating is not.
New cover after 60 requires underwriting, costs substantially more at your current age, and may be unavailable or heavily restricted if anything has appeared on your medical record in the meantime. Our guide on exclusions and loadings explains how a modest health history changes the terms available.
If you hold an older policy, it may also have terms that are simply not sold any more, including broader definitions and fewer exclusions. That policy can be worth considerably more than its premium suggests, and it cannot be repurchased at any price.
The middle ground almost nobody considers
The decision is presented as keep or cancel. It rarely is.
- Reduce the sum insured. If the real remaining need is $250,000 of estate liquidity rather than $900,000 of income replacement, insure $250,000. The premium falls broadly in proportion and the cover survives.
- Move the premium, not the policy. Where cash flow is the problem, holding cover inside superannuation can shift the premium off your household budget and onto your super balance. That has its own consequences, including the tax point above and the balance erosion, but it can keep cover in place that would otherwise be cancelled.
- Drop the components you no longer need and keep the ones you do. Income protection may be redundant while life cover is not. TPD may be less relevant once you have stopped working while trauma cover still matters to you. These are separate covers and can usually be dealt with separately. Our guide on trauma versus TPD explains the difference.
- Check the premium structure. Stepped premiums rise with age and are what usually drives the cancellation question. Level premium options exist, although switching is generally only worthwhile earlier rather than in your sixties. Our guide on tailoring cover and premiums as you get older covers the options.
- Ask about suspension or premium holiday features. Some policies allow cover to be paused for a period in defined circumstances. It is not universal, but it is worth asking before cancelling for short term cash flow reasons.
Reducing cover is reversible in one direction only, but a smaller policy that stays in force keeps the underwriting you already have. That is the asset you are really protecting.
Six questions to work through
- If I died tomorrow, who would be financially worse off, and by how much? Name them and put a number on it.
- What would they actually receive, from assets, superannuation and existing cover, after tax?
- What is the shortfall, if any? That number, not the current sum insured, is what needs insuring.
- How long do I still need cover for? Until a debt is cleared, until a child finishes study, or indefinitely for estate purposes.
- Is the premium sustainable for that period? If not, what smaller amount would be?
- Could I obtain this cover again if I changed my mind in three years? Be honest about your health.
If questions one to three produce a shortfall of zero and question six does not worry you, cancelling is a reasonable decision. If there is a shortfall, the answer is almost always to resize rather than remove.
If you decide to cancel, do it safely
- Never cancel before replacement cover is accepted and in force. Not applied for, not likely to be approved. In force. This is the single most damaging mistake in this area and it happens regularly.
- Do not cancel while any medical investigation is under way. Wait for the outcome.
- Be careful with cover inside superannuation. Group cover generally cannot be reinstated without underwriting once it ends, and it can also switch off by itself, which our guide on insurance cancelled on inactive super accounts explains.
- Check every account. People often hold cover in more than one super fund without realising, and cancelling the one they know about leaves the position unclear rather than resolved.
- Tell your family what you have done. An executor who assumes there is a policy, and there is not, will build the estate plan around money that does not exist.
- Get the confirmation in writing and keep it with your estate documents.
Where Professional Advice Adds Value
We should be clear about the incentive here. Advisers are sometimes paid commissions on insurance, which gives the industry an obvious interest in cover staying in place. Read what follows with that in mind, and ask any adviser you speak to, including us, how they are paid for this advice.
Our view is that plenty of Australians are over-insured in their sixties and paying for cover sized to a life they no longer live. Reducing it is often the right answer and we say so regularly. What is much rarer is that the right answer is zero, and the reason is usually estate liquidity or the tax position of what would be left behind rather than income replacement.
The work worth doing is the arithmetic in the six questions above, done properly with your actual super balances, your actual tax position and your actual estate plan in front of you. That usually produces a number, and the number is almost always different from both the current sum insured and from nothing. Our guides on whether seniors life insurance is worth it and avoiding paying too much or too little approach the same question from the other direction, and building a sustainable retirement income is what the premium is competing against.
Frequently asked questions
When should I cancel my life insurance?
When nobody would be financially worse off if you died, which generally means no dependants, no debts that would fall on others, and enough in superannuation and investments to cover any estate costs and taxes. If there is still a shortfall, reducing the sum insured is usually a better answer than cancelling.
What does being self-insured mean?
That your own assets can absorb the financial consequence of your death or disability without anyone being left short. It depends on the gap between what your dependants would need and what they would actually receive after tax, not on the size of your balance sheet alone.
Should I cancel income protection when I retire?
Generally yes, because income protection pays a benefit calculated on lost earnings and there are none once you stop working. Most policies expire at 65 in any case. Check the policy terms first, particularly if the premium is being deducted from a superannuation account where you may not notice it.
Can I get my life insurance back if I change my mind?
Usually not on the same terms. New cover requires underwriting, costs considerably more at an older age, and may be limited or unavailable if your health has changed. Older policies can also contain terms no longer offered. Assume cancelling is permanent and decide accordingly.
Is it better to reduce my cover than cancel it?
Very often, yes. Reducing the sum insured lowers the premium broadly in proportion while keeping the policy, and with it the underwriting you already have. If the remaining need is smaller rather than absent, resizing solves the cost problem without giving up something you cannot repurchase.
Why does life insurance in super cost my children more?
Superannuation paid to a non-dependant adult child is generally taxed on the taxable component, at up to 15 per cent plus the Medicare levy on the taxed element and up to 30 per cent plus the Medicare levy on any untaxed element. Insurance proceeds paid through a fund can increase the untaxed element, so cover held in super and intended for adult children can be tax inefficient. That is usually an argument for restructuring rather than cancelling.
What should I do if I cannot afford the premiums?
Look at the middle options before cancelling. Reduce the sum insured to what is genuinely still needed, consider whether holding cover inside superannuation would move the premium off your household cash flow, drop components you no longer need such as income protection, and ask the insurer whether any suspension or premium holiday feature is available.
Taking the next step
Before you cancel anything, work out the number. What would actually be needed, what would actually be received, and what the difference is. If the difference is zero, you have your answer. If it is not, insure the difference rather than the amount you happened to buy twenty years ago.
And whatever you decide, do not cancel anything until any replacement is in force. That single rule prevents most of the damage done in this area.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not tax advice. Cancelling insurance is generally irreversible in practice, as new cover requires underwriting and may be unavailable, restricted or significantly more expensive. Policy terms, premium structures and available features differ between insurers, and taxation of superannuation death benefits depends on the recipient and the components of the benefit. Confirm your position with your insurer or fund, obtain tax advice from a registered tax agent, and seek personal advice from a licensed financial adviser before cancelling, reducing or changing any insurance.
