Life Insurance After Retirement
Do you really need to own or buy life insurance after you retire? It depends. Here are some examples of when you need it and when you don’t.
It’s easy enough to come up with reasons why people should buy life insurance while they’re in the prime of their lives, but what about once they’ve retired?
That can be a more difficult task.
After all, a lot of retirees don’t have to protect anyone from their untimely passing. Their children are grown. They’ve paid off their homes. Perhaps most importantly, there’s usually little to no income that would need to be replaced if they passed away unexpectedly—which is what pushes most people to purchase life insurance.
“Generally, life insurance should be in place to cover present value of future earnings,” says James Hunt, a life insurance actuary with the Consumer Federation of America and the founder of Evaluatelifeinsurance.org.
Of course, not all people who are in their mid-60s or older can claim those accomplishments. Or there are other things going on in their lives that make continuing or starting to pay for life insurance the smart thing to do.
7 Reasons to Buy or Maintain Life Insurance After Retirement
Although it’s often suggested that people who are retired have little to no reason to buy or continue paying for life insurance, there are a number of exceptions to that so-called rule, including the following:
If you’re in debt
Retirees who have a significant amount of debt should think long and hard about letting any life insurance policies lapse. Doing so could put your loved one’s livelihoods at risk due to them having to pay off that debt in your place if something happens to you.
And if you’re in debt and you don’t yet have any life insurance? Now’s the time to pick up a term policy that expires after your loan payments are set to end. Don’t feel the need to purchase more coverage than you need, though. Just buy enough so your survivors could get rid of your debt if need be.
If you’re still working
Retirement doesn’t always mean your years of employment are over. A growing number of Americans continue to work beyond their 66th birthdays.
If you’re a member of that group, keeping the life insurance policy you bought some years ago—or spending money to buy one now--isn’t a bad idea. Doing so will help protect your spouse or children or other loved ones from being impacted by the loss of that income if you pass away.
Granted, you may not feel the need to buy or continue paying for your life insurance coverage if your post-retirement job is a part-time one and if it doesn’t provide your family with much income.
On a related note: most experts will tell you to cancel your life insurance policy if the people you want to protect—your spouse or children, most likely—pass away before you do.
If you’re a small business owner
Admittedly, for a lot of people, this situation is sure to go hand in hand with the one mentioned earlier about being in some amount of debt.
That said, not all small business owners or partners—or even key employees—have massive amounts of debt.
No matter what your debt situation is, though, if you’re a small business owner or partner and if you have a spouse or children who rely on that business for survival, purchasing or keeping some amount of life insurance coverage is a good idea.
As has been the case with pretty much all of the situations discussed so far, life insurance in this instance will prevent those loved ones from suffering financially if something happens to you.
Don’t currently have a life policy? Let QuoteWizard help you compare life quotes from top insurance companies so you can get the best price on the right amount of coverage.
If you’re caring for children with special needs
Usually, children depend on their parents until they turn 18 or leave for college or otherwise become adults.
There are times, though, when children rely on their parents’ income far longer than that, with one example being when those children have special needs.
Some couples “have to protect special needs children, or even elderly parents, and so may be [in the market] for coverage,” Hunt says.
In these situations, life insurance can make sure a son or daughter will be taken care of if something happens to their parents. This is especially true if those children need or will need ongoing medical care or assisted living.
Actually, all of the advice mentioned above also could be put into action by retirees who had children late in life and who continue to rely on their income.
If your spouse depends on your pension or Social Security
Life insurance often is promoted as being a product that allows a policyholder to protect loved ones from suffering financially if they passed away. Given that, it probably could go without saying that this kind of coverage can be a lifesaver for a spouse who depends on someone else’s pension or Social Security income.
So, if you have a husband or wife in this situation and you don’t have a permanent or term life policy, take some time to check out and compare quotes from a number of different insurance companies. Doing this will allow you to pay the least amount of money for the most amount of coverage.
If you want to protect your survivors from estate taxes
Admittedly, wealthier people might find this suggestion most relevant, but other retirees could benefit from it, too.
That’s because loved ones in both situations can use the “death benefit” paid out by your life policy to pay estate taxes. Without that, they might have to sell investments or even cars, homes, or jewelry to pay for them.
“With estate exemption at $10,000,000 per couple, some may wish to buy life insurance to pay estate taxes,” Hunt says, although he adds that this market “has diminished greatly in last 15 years.”
Your heirs also can use a life insurance payout to cover funeral other “final expenses.”
Regardless, this definitely is something you should run by an agent before you decide.
If you want to leave a charitable legacy
One last reason to buy or keep a life insurance policy: you’re the kind of person who wants to leave money to a charity or other organization when you pass away.
If you’re looking for specific advice related to this, Scott Simmonds, a Saco, Maine-based insurance consultant suggests (via CNBC.com) that "instead of making annual donations to your college of $10,000 a year, you could buy life insurance worth $500,000 and pay the premiums with the equivalent of that annual donation.”
Key Questions if You’re Contemplating Life Insurance
Retired and don’t currently have life insurance but are considering buying it? Here are a handful of questions to ask yourself before moving ahead with a purchase:
Do I really need life insurance?
If someone relies on your income and will suffer financially if you pass away unexpectedly, yes, you probably need life insurance. This is true whether you’re retired or you’re just entering the workforce.
Do I want life insurance?
Some retirees decide to buy life insurance even if they really don’t need it. There are all sorts of reasons for that, with one being that they like the idea of using life insurance to leave an inheritance to their loved ones. Another is that they like the idea of using it to leave money to their favorite charities or organizations.
How much life insurance should I buy?
This question’s easy enough to answer. Think of the people who would suffer if something happened to you. How much money would they need to negate that financial impact? That’s the amount of life insurance you should buy.
What type of life insurance should I purchase?
Here are your options when it comes to the kinds of life insurance you could buy.
This type provides coverage for a specific period of time. That period can be as short as a single year or as long as 30 years. If you pass away during that period, or term, your beneficiaries will be paid. If you don’t, the policy lapses and no one gets anything.
So, if you think you’ll only need life insurance for a certain amount of time, consider buying a term policy.
Keep in mind that term policy premiums are either level or rising. Level premiums remain fixed throughout the term, while rising premiums increase over time.
This type also is known as cash value or whole life. No matter what you call it, this kind of insurance covers your loved ones until the end of your life.
Although both term and permanent life insurance are going to be pretty expensive if you wait until after you retire to buy them, permanent is likely to be especially pricey.
Still, some think of it as a worthwhile way to provide family members with cash they can use to pay estate taxes. Others use it as a way to donate money to charities after their death.
Additional Frequently Asked Questions
Q: I just retired. I’ve heard that I no longer need life insurance. Is that true?
A: It depends on your situation. If someone in your life—usually a spouse or children—depends on your income, buying life insurance could be worth the money. Also, it can be worth it if you want to make sure a certain amount of money is donated to one or more charities after you pass away.
If neither of those things are true for you, though, you may want to use that money for something else.
Q: What are some of the situations that should push me, a retired person, to cancel my life insurance coverage?
A: If no one in your life relies on your income, you may not need this kind of insurance. Before you cancel your policy, though, you should talk to your agent or a financial advisor.
Q: I’m a retiree and I don’t have any life insurance. Should I consider buying a policy?
A: Does anyone depend on you financially? If the answer is yes, you should at least think about buying a term or permanent life insurance policy.
Need help figuring out which type would be best for you? Talk to a number of agents about your situation as well as your wants and needs in this area.
- Life Insurance for Retirees: For Some it Makes Sense
- I Retired - Do I Still Need Life Insurance?
- Do You Need Life Insurance in Retirement?
- Later-Life Insurance Rules
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