The Empty Nest Everything changes when the last child leaves home. Not only will empty nesters see the piles of laundry and dishes in the sink shrink, they may also expect to see smaller monthly bills for items such as for groceries and insurance. But don't cancel your policy just yet, there may be reasons you should hold on to your term life insurance.

Term life insurance protects the spouse

The National Association of Insurance Commissioners (NAIC) states the major reason most maintain life insurance is to replace income. Even if you don't have to pay for daycare, summer camp or trombone lessons, chances are your household would have difficulty managing on a single income. Before canceling term life insurance, take the time to calculate whether your spouse would be able to maintain your current quality of life without your income.

State insurance departments, such as those in Connecticut and Oregon, also recommend that empty nesters consider four factors before changing life insurance coverage:

  1. Total of remaining debts including your mortgage
  2. Whether your children are financially independent
  3. The financial assets available to your surviving spouse
  4. Value of your estate and the probability your heirs will have to pay an estate tax

Term life insurance as an inheritance

Beyond providing for your spouse in the event of an untimely death, term insurance can also be used to create or protect an inheritance for your children or other loved ones. For those with limited financial assets, a life insurance policy offers the opportunity to provide heirs with a monetary gift upon your passing.

Children with parents whose estates are very large may benefit from being named a life insurance beneficiary. Life insurance payouts are not taxable. However, very large estates--those exceeding $5 million in 2010--are subject to a federal estate tax. If your heirs may have to pay estate taxes, you may wish to take out a term life insurance policy that has a death benefit large enough to cover the estimated tax amount. According to the Life and Health Insurance Foundation for Education that tax could be up to 45 percent of your total estate value. If you wish to use term life insurance to pay for estate taxes, you should consult a professional tax adviser.

In addition to providing an inheritance for your children or grandchildren, term life can also be used to leave bequests and gifts to charities. To determine how best to make such as a donation, consult with a professional estate planner.