Ask the Expert: How important is life insurance?

My husband bought a $150,000 flexible premium life insurance policy more than 20 years ago. He's now 70, and our children are adults. I don't think we'd buy the policy today if we didn't own it. The insurer says our $1,000 annual premium will maintain it until 2014. The cash surrender value is about $6,000 and declining a little every year. The agent wants to talk about switching to a different policy. What should we do?

If you don't need life insurance and don't want to keep the policy as an investment, it may be time to surrender it.

In cash value policies, part of your premium pays for insurance, and part goes into an investment account. With a flexible premium, if you pay less than the full cost of the policy, the insurer deducts the balance from the investment account.

Your cash value is declining because the deductions have exceeded the premiums you've paid and the interest earned in the investment account, says Glenn Daily, a fee-only insurance adviser. Based on information you emailed me, that account currently earns 4 percent, which is its minimum guaranteed return.

If the insurer lets you reduce the $150,000 face amount to, say, $25,000, you might be able to stop paying premiums. That would effectively turn the policy into a 4 percent savings account, Daily says.

Alternatively, you could exchange the policy for an annuity. The exchange is tax-free -- and you're not restricted to your current insurer's annuities. (If you do this, comparison-shop!) A third option is to surrender the policy and take your $6,000. After 20 years there's no surrender fee, and probably no taxes: The cash value is taxable only to the extent that it exceeds the premiums you've paid.

The bottom line. As you grow older, you may no longer need life insurance.

 Click here for a similar article on Lynn Brenner's blog,   and click here for more information from the Consumer Federation of America.