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There is no denying the importance of life insurance. As an integral part of your financial plan, life insurance can protect you and your dependents in the case of loss of income due to death. For a young couple, insurance is especially important as they have years of expenses ahead of them. From mortgage payments to their children's education, life insurance is the ideal vehicle to protect assets and offset expenses. But, as obligations dwindle over time, older retired couples might wonder if life insurance is really all that necessary.

After all, their children have left the home, their debts and mortgages have been paid off and the monthly insurance premiums may just be considered an unnecessary expense. Under these circumstances, one might consider terminating one's life insurance policy. Another reason for wanting to terminate your life insurance policy may be that you just can't afford the premiums anymore. Due to illness, loss of employment or other commitments, the monthly premiums are getting more and more difficult to meet. Is termination your best option then?

However, any financial expert would advise you against terminating your policy prematurely. Life insurance is a long-term commitment and should not be treated as a mere investment tool or a quick-fix device. If you terminate your policy ahead of schedule, you will end up paying additional charges and fees. If you have a term life insurance policy and you cancel it, you will receive nothing in return as there is no cash value component attached to such policies.

With a permanent life insurance policy, you would have built up a cash value along with your premium payments. When you terminate such a policy, you need to pay a surrender fee in order to access the cash component. Often the surrender value will be less than the total amount of premiums paid over the years. If you have already taken out a loan against the policy and have not repaid the amount at the time of cancellation, you might not get anything in return. Additionally, there may be taxes incurred as well. Apart from all the warnings against the charges and fees that you will incur, ultimately terminating a life insurance policy leaves you and your family vulnerable once again. In such troubled economic times, the peace of mind attached to knowing that you are protecting your family from financial difficulty is priceless.

Here are some other options you can try out before terminating your policy irrevocably:

If you can't afford your insurance any more --

Review your coverage -- Speak to your insurance company and see if you can opt for a lower coverage amount for a smaller premium. Still keep in mind your needs though and make sure that the cover is enough to meet them
Comparison shop -- Look around and compare products of other insurance companies to make sure you are getting the best deal for your situation.
Reduce other expenses -- As far as possible, try and keep your policy active. If it means cutting back on other expenses, it would be a worthwhile sacrifice. You may have purchased your policy when you were younger and in better health. Canceling it now and applying for a new one later on will only put you in a higher premium bracket unnecessarily.

If you feel your policy is not needed any more --

Gift the policy -- Did you know that you could gift your insurance policy by naming a particular charity as your beneficiary? If you feel that you can live without your life insurance benefits, you have the right to change beneficiaries from your spouse or family member to the charity of your choice. You will also receive a charitable deduction for the cash value of the policy.
Sell your policy -- Another viable option is to sell the policy. There are several companies that will purchase the policy from you. As they will continue to pay the premiums, they will receive the death benefits after you die. For this option to be considered, you have to be over 65 years of age. The amount paid for the policy might vary from company to company so do your homework before finalizing anything.

If termination is your only option and you have a term life insurance policy, all you have to do is stop paying your monthly premiums and the policy will stand as canceled. In case of a whole life policy, you need to get the full picture from your insurance agent. You need to determine how much cash value you will receive if you terminate your policy and how much taxable income will be generated as a result of the encashment. Attached to all of the suggestion listed above are tax ramifications, therefore please speak to a certified financial planner or insurance expert before making any decisions.