Do I Need Life Insurance After Retirement?

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Quick Answer

It depends. Life insurance can serve many purposes. For example, you many people use it to cover final expenses, replace lost wages, or pay off debt.  

But depending on the type of policy you get, you could also use life insurance to supplement your retirement income, or even leave an inheritance for your loved ones.

That said, you don’t want to waste money on something you don’t need. So, it’s important to take time to consider your goals and your loved ones’ needs after you pass away.

According to a study by the Life Insurance Marketing and Research Association, the top five reasons people buy life insurance include:

  1. Cover burial and other final expenses
  2. Help replace lost wages or income of a wage earner
  3. Transfer wealth or leave an inheritance
  4. Help pay off a mortgage
  5. Supplement retirement income

If you have sufficient retirement income, you might think that you have enough to cover all of these things. But depending on your and your dependents’ needs, it may still be a good idea to maintain a life insurance policy after you retire.

Here are five situations in which you may still need life insurance after you retire.

You May Still Be Working

For many retirees, retirement isn’t a work-free experience. If you need to work a part-time job to supplement your retirement income, you may need life insurance coverage to help your partner replace your lost income when you die.

You May Want to Leave a Financial Legacy

Let’s say you want to leave a healthy inheritance to your partner or kids. Not only could a life insurance death benefit provide that inheritance, but it could also help cover any taxes your estate may owe.

This can be an especially good option if you don’t have the net worth to provide an inheritance but have the cash flow to pay monthly premiums.

Alternatively, you may be involved with a charitable organization or cause and want to make a sizeable donation upon your death. With life insurance, you can do this without interfering with your loved ones’ inheritance.

You May Want More Certainty

While investing in retirement is usually more conservative than during your working years, it’s still possible to lose a sizeable amount of money during an economic recession.

For example, the Employee Benefit Research Institute found that 401(k) accounts with more than $200,000 in funds lost an average of 25% of their value in just one year during the Great Recession.

If you have a whole life or universal life insurance policy, you can build cash value in addition to providing a death benefit. And depending on the type of policy you have, your cash value isn’t tied to the stock market, and may even have a minimum guaranteed return.

The longer you keep the policy, the faster the cash value builds up. So, if your traditional retirement accounts don’t perform well, you’ll still have a nest egg for your later retirement years.

You May Get Some of the Benefits While You’re Still Alive

If you’re diagnosed with a terminal illness or disease, you could end up draining your retirement funds paying for treatments. But if your life insurance policy has an accelerated death benefit (ADB) rider, you may be able to access the policy’s benefit to help you cover those costs.

That way, you can get the treatment you need without draining your retirement accounts, leaving your partner broke.

Just keep in mind that if your partner or loved ones need the death benefit after you die, using it up with an ADB rider could still cause them financial issues.

There May Be Special Circumstances

If you have a partner or child with special needs, you may not want to leave them to cover their own living expenses and costs of care.

To help them, you can set up a special needs trust that spreads out payments until the beneficiary’s death. And if you plan it well enough, you can provide assistance without causing them to lose eligibility for government benefits like Social Security income and Medicaid.

Since a special needs trust typically doesn’t get funded until the owner’s death, a life insurance policy is a great way to fund one.

The Bottom Line

For most people with enough retirement savings, it may not make sense to keep a life insurance policy after you leave the workforce.

But to make sure you’re not making a mistake, take a look at your financial situation, and determine if a life insurance policy could help you achieve your goals. You can also get a free consultation with one of our licensed life insurance agents to help you determine if you need coverage and, if so, how much.

Peace of mind starts at $14/month*

See Your Rate
*Sample quote is based on 35-year-old healthy male in California receiving a $250,000 10-year Term Life policy (Policy Form # I L1702) underwritten by Assurity Life Insurance Company.
ABOUT THE AUTHOR
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Ben Luthi is a freelance writer who covers insurance, credit cards, student loans, and other personal finance topics. His work has appeared in publications like USA Today, The Christian Science Monitor, Credit Karma, NerdWallet, Money, and more.

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