Life Insurance Needs

Your life insurance needs may change when you retire. Life insurance needs often decrease. Some people may need a lot of life insurance to help pay estate taxes. This depends on how the furor over eliminating the estate tax is resolved. My best guess now is that if the estate tax is maintained, those with estates of less than several million dollars are likely to be exempt. So unless you're rolling in it, you're more likely to need less, rather than more life insurance coverage. Another possible exception to that sweeping statement is if you need to replace any life insurance you had through your employer to support family members who remain dependent on you after you retire. By the way, if your employer allows you to continue life insurance coverage after you retire so long as you pay for it, this is often a low cost way to maintain the coverage.

Here are some matters to consider:

  • Will a surviving spouse or partner suffer a large decline in income? A small declination is probably okay, because one can live on less income than two. The answer to this query will require an evaluation of the survivor benefits available from pension plans and annuities, if any, as well as any decline in Social Security benefits. If there is a major decline, life insurance may be necessary, although it can be very expensive for retirees.
  • Is passing on an inheritance important? Some retirees are anxious to pass on an inheritance to their children or other younger generation family members. Sometimes this is essential if any heirs are disabled or are having real difficulties succeeding financially. Either way, life insurance can assure that something will be passed on without having to spend your retirement worried about spending the children's inheritance.
  • Will your survivors need any extra money to pay for what is referred to as "final expenses"? These expenses might include your funeral and other one-time expenses. Depending on your particular circumstances, additional money may be needed to pay for a funeral pyre, costs of catering and rare scotch served at a soiree following the funeral, a Mercedes, and bereavement costs, including a three-week South Pacific cruise for 35 family members.

If you need more coverage. While retirees more often find that they need less life insurance, some need more. If you need to acquire additional life insurance at retirement, particularly if you'll need the coverage indefinitely, rather than over just a few years, you'll almost certainly need to obtain cash-value insurance (also called "permanent" insurance) rather than term insurance. While term insurance was very inexpensive in your younger years, it can become prohibitively expensive in your later years. If you need to acquire cash value insurance, consider sticking with old-fashioned whole life insurance rather than the new fangled cash-value life policies that could work out okay, but in selecting financial products, it's often best to stick with the basics, and there's nothing more basic than whole life insurance.