Do You Need Life Insurance in Retirement? Retirement planning necessitates a re-evaluation of your goals and plans, much like all other phases of life planning. Regardless of your retirement goals, having a strong financial plan will help you stay on course for your retirement. If you’re considering retirement or have already retired, you may be wondering if you still need life insurance.
You can get life insurance in retirement to cover funeral costs, settle outstanding debts and estate taxes, make a charitable donation, or leave an inheritance. However, you may not need to get life insurance if you have already achieved all these goals. In this article, we will discuss how life insurance in retirement can be essential for your plan and other related factors.
Types of Life Insurance in Retirement
Life insurance is a well-known financial tool to secure you against future income and other losses. Similar to any insurance product, there are various kinds of life insurance in retirement, which are
Term life insurance
This policy, also known as temporary life insurance, offers coverage for a certain time frame, usually between 10 and 30 years. In addition, the coverage will lapse if you outlive the term or cease making premium payments.
Whole life insurance
This kind of permanent life insurance has no expiration date as long as you continue to pay your premiums. This policy is beneficial for long-life requirements and is the main factor of estate planning. Additionally, cash value is another feature of whole life insurance that you may be able to access at any point in your lifetime.
Universal life insurance
Another kind of permanent life insurance is universal life insurance, which lets you change the amount you pay each year in premiums. In addition, numerous whole life insurance policies have a constant premium.
Burial insurance
Burial insurance, also referred to as final expense or funeral insurance, is a small whole life insurance policy intended to pay for your funeral expenses. Generally, these policies only provide coverage for $5,000 to $35,000. Furthermore, there are burial life insurance policies that don’t need a medical examination.
How Life Insurance in Retirement is Important
Numerous households use all of their income before retirement to support their way of life and cover expenses like childcare. When two people are employed, the family’s standard of living is frequently dependent on both incomes. This is also true if one partner works, with the other handling household chores and child care.
However, the household might experience a financial emergency if one or both of them passed away. It’s possible that you won’t need life insurance to achieve these objectives once you retire and your children grow up. However, there are other circumstances in which it makes sense.
When You Need Life Insurance in Retirement
Here are some reasons for needing life insurance for retirement:
Replacement of pensions
If your pension provides a sizable portion of your retirement income, you may require life insurance in case your spouse or another dependent is unable to receive your pension following your passing.
Preparation of an estate
Occasionally, life insurance is used as an estate planning tool by wealthy retirees. Rather than selling assets at a loss, life insurance death benefits could be used to cover estate taxes.
Coverage against declines in the stock market
Cash value life insurance can offer a safety net in the event that the value of your portfolio declines to the point where it affects your lifestyle and lowers your income stream if you’re worried about how a market crash might affect your investments.
Pay for unforeseen costs
If you need to borrow against your cash value policy or take out a loan against it, a cash value policy can help you cover unforeseen costs. Some choose to purchase a small life insurance policy in order to cover funeral costs because the benefits are typically paid to heirs right away.
Assign assets to each heir in equal shares
You could use your life insurance death benefit to equalize the gifts you want to leave for child number three if you want to give your house to child number two and your stock portfolio to child number one.
When You Don’t Need Life Insurance in Retirement
Upon approaching retirement, if you do not currently have life insurance, consider the following reasons before acquiring it:
Elevated premiums
The payout of life insurance occurs upon death, and the likelihood of dying increases with age. As a result, insurance companies raise their rates as you age, and premiums in your 60s can become very costly. Spending the money you would have to pay for premiums could be a better option.
Cash value costs
Simple term life insurance has level premiums and a predetermined death benefit for a predetermined number of years. However, cash value policies—like whole life or variable life—have more parts than term policies—insurance plus an investment portfolio—and they may also have higher commissions and fees, especially in the initial years.
Transfer of assets to beneficiaries
You can use your will or trust to provide income protection when transferring ownership of these assets to another person or people. This can occur if your income is derived from real estate, bank savings accounts, IRAs, or retirement plans invested in stocks, bonds, and mutual funds, or if you own real estate.
Final Thought
It’s important to note that life insurance in retirement can be costly unless you are using current policies. Depending on your sources of income and total estate value, life insurance may provide compelling financial flexibility in either scenario. Furthermore, you can consult with a financial advisor about your options if you currently have policies or are considering purchasing a new one to provide additional coverage for your retirement income.
