The Self-Insurance Calculation
You may be self-insured when: your surviving spouse’s income + annual portfolio withdrawal (4% of savings) ≥ annual household income needed. Example: Spouse earns $60,000. Portfolio is $1,500,000 (4% = $60,000). Combined: $120,000/year. If your household needs $100,000/year after your death, you’re self-insured — a death benefit isn’t needed.
Self-insurance portfolio threshold by surviving spouse income
| Surviving Spouse Income | Portfolio Needed at 4% Rule | When Life Insurance Can Be Reduced/Eliminated |
|---|---|---|
| $0 (stay-at-home) | $2,500,000 | When portfolio reaches $2.5M+ (for $100K/yr need) |
| $40,000 | $1,500,000 | When portfolio reaches $1.5M+ (for $100K need) |
| $60,000 | $1,000,000 | When portfolio reaches $1M+ (for $100K need) |
| $80,000 | $500,000 | When portfolio reaches $500K+ (for $100K need) |
| $100,000 | $0 | Spouse income alone covers the household need |
Premature cancellation of life insurance — canceling because assets seem 'close enough' — is a dangerous mistake. The 4% portfolio withdrawal must sustain the surviving spouse for potentially 30+ years, through market downturns. Use the conservative threshold (assets can fully sustain without insurance) rather than 'almost enough.'
The Mortgage Factor in Self-Insurance
Even if your portfolio could support the surviving spouse’s income needs, an outstanding mortgage creates a liquidity requirement: the spouse either needs to service the mortgage from income (is that sustainable?) or pay it off (reducing the available portfolio). Factor outstanding mortgage balance into self-insurance calculation: add it to the required portfolio before declaring self-insured.
Gradual Coverage Reduction vs. All-or-Nothing
Rather than maintaining full coverage until the exact self-insurance threshold and then canceling everything: consider gradual reduction. As assets grow and debts shrink, reduce coverage in steps — from $2,000,000 to $1,000,000 to $500,000 to final expense coverage only. This matches coverage to actual need at each life stage while maintaining some protection throughout.
Recalculate Your Need With Current Assets
Enter your current savings, spouse income, and debts to see whether life insurance is still needed and at what level.