Should I Keep My Life Insurance After I Retire?
First, to make the best decision for your situation, think about the type of life insurance you have and the reason you secured the policy in the first place. Is the need still there? Also, know the type of insurance you have. Do you have a term life or whole life policy? A term life policy usually has a fixed term of 5 to 30 years and is typically structured around a shorter-term need like getting your kids through college or paying off a mortgage. If the policy was taken out for a purpose that is no longer relevant, you may not need to maintain the insurance. If you have a term life policy, knowing how much longer you have on your term may also affect your planning.
If you’ve been carrying a whole life policy, you may want to weigh the annual benefit against the cost of holding onto this policy. Whole life policies tend to be more expensive because of the added guarantees and features they provide. Unlike term life, whole life policies include an investment component and cash value that you can typically withdraw from or borrow against as needed. Consider whether those features are important for you and your family in retirement, or whether it could be more economical to invest the money you’re currently spending on premiums.
Consider Your Income, Assets, and Living Expenses
Next, review your income, assets, and living expenses. If you have substantial retirement income and have accumulated a healthy portfolio that will allow your spouse or partner and any dependents to live comfortably in the event of your death, you may not need life insurance.
An income and expense projection that considers inflation is highly advisable. Depending on what it reveals, keeping a life insurance policy may be appropriate and necessary to help your survivors maintain their current lifestyle.
For example, if one person receives a pension but has not elected a survivor benefit, then it’s likely that the surviving partner will see a significant loss of income. At the same time, losing one person doesn’t cut living expenses by exactly half, so providing additional income for the surviving spouse through a life insurance payout could be necessary.
Consider Other Expenses
Another reason to consider maintaining your life insurance policy is to cover future expenses unrelated to the initial purpose for the insurance. These might include funeral and other end-of-life expenses, long-term care expenses (benefits that may be available with some policies), and taxes due in association with settling your estate.
Supporting Your Legacy
Many people who keep their life insurance in retirement do so because they want to provide greater financial security for their children or grandchildren. They may also want to make a final bequest to a charity or organization that is meaningful to them by naming the organization as a beneficiary of the policy.
Before you cancel or add an insurance policy, talk to a financial advisor about how your life insurance figures into your financial goals.