Have you recently retired? Are your kids self-sufficient? Are you free of debt?
You may no longer need life insurance. Life insurance is primarily designed to replace lost income and provide financial support for your family if something were to happen to you (the policyholder). However, once you’re no longer earning money, is life insurance still necessary?
Below we will cover the types of life insurance policies and why you should consider life insurance in retirement.
What is Life Insurance?
Life insurance is designed to protect your family from financial hardship in case of premature death. Life insurance covers a loss of income and helps any dependents financially with everyday living expenses, childcare costs, and mortgage repayments. Unless a claim is made, life insurance has no monetary value. Although, it does provide assurance and peace of mind for both you and your family.
Many employers offer life insurance as part of a benefits package. So, once you retire, your employer no longer makes payments. Although, do you need to continue your life insurance policy into retirement?
Types of Life Insurance Policies
There are two basic types of life insurance policies; term insurance and cash-value insurance.
Term Life Insurance:
Term insurance is the most popular and affordable. If you pass away unexpectedly within the covered period, a lump sum (or monthly income) is awarded. However, when the period passes and the policy lapses, there is no benefit paid.
Permanent Life Insurance:
As the name suggests, permanent insurance offers protection for your entire lifetime. Permanent life insurance accumulates cash value over time. Premiums are much higher, although the full amount will be paid.
Every Situation is Different
There isn’t a straight answer on whether you should keep life insurance in retirement. Your circumstances will be entirely different to someone else. However, before you continue paying into your policy, it’s important to understand why you should consider life insurance in retirement.
Do you have any outstanding debt?
While ideally, you will want to be financially free, the reality is that many Americans carry significant debt into their older years. Credit card debt, mortgage repayments, and student loan debt are some of the most significant problems for retirees. According to research, the average American is passing away with $62k worth of debt, which can place a substantial financial burden on loved ones.
Life insurance may be extremely beneficial if you have large amounts of debt and your family risks financial ruin. However, it’s important to be careful and not to overinsure; otherwise, you will end up paying more than you need to. Consider a level-premium term insurance policy that ends once your repayments finish.
Are your family (Children and Spouse) self-sufficient?
Do you have any dependent children that will be living in your home for the foreseeable future? Or, do you have children with special needs that require ongoing support? In these circumstances, life insurance would be a smart option.
Another consideration is, will your spouse lose a significant amount of your pension income? Life insurance, in this situation, can help bridge the gap and provide added relief.
Can life insurance help with your estate and final expenses?
The proceeds can be used as an immediate source of cash to help fund funeral costs and other expenses.
Also, if you have a considerable amount of assets, life insurance can be used strategically to cover any estate/inheritance taxes. However, this won’t apply unless your estate is considerably large.
Do your Research Before Considering Life Insurance in Retirement
The most important thing to consider, is, both your and your families’ circumstances. If you still have significant debt or have dependent family members, it’s something worth considering. After all, it’s better to be safe than sorry. However, for the majority of retirees life insurance is just an unnecessary expense.
If you’re considering whether to keep life insurance in retirement, it’s worth speaking to an expert for advice. Contact us for a free no obligation quote and see if life insurance makes sense for your situation.