We usually purchase our first life insurance policies when we get married or when we start to have or adopt children. The main reason for getting life insurance, of course, is to ensure that the dependents of the insured person will have continued financial security after the insured individual passes away. But does that mean that once the insured person retires, and the kids have moved out of the house, that there’s no longer any need for life insurance?
The answer to that question isn’t quite as straightforward as you might think. Instead of assuming that life insurance is no longer necessary, ask yourself these questions to help come up with the answer that’s right for you.
Here is some life insurance advice you should consider once you have retired.
What Type Of Life Insurance Do You Currently Have? The two most common types of life insurance policies are Term Life and Whole Life, although there are different variations of each of those basic types. (In fact, well-known Whole Life policies are actually a particular type of “Permanent Life” policy.) If you currently have a Term Life insurance policy, then your decision of whether or not to continue it depends on whether you’re permitted to cancel the policy, what your current premiums are, when its term would expire and the state of your health. If it’s affordable and/or you anticipate a payout in the near future, you might want to keep it in place.
Life Insurance as an Estate Planning Tool. Some individuals desire to use their life insurance policies as an estate planning tool. A Term Life policy can fit into this role, but for only as long as the policy remains in effect. A Whole Life policy (or any other type of Permanent Life policy) is certainly more viable and common as an estate planning tool, because of the policy’s residual value.
Ability to Borrow Against the Policy. If you have some type of Permanent Life policy you’ll be able to borrow against your policy, or to cancel the policy and collect the surrender value. Depending on your needs you might want to consider collecting that amount and putting it to use elsewhere within your retirement plan.
How Much are You Paying for Life Insurance? If you’re currently paying on a Term policy, or you need or Permanent Life policy, you must take into account the cost of that coverage. Sometimes the cost of obtaining new coverage later in life is too high in comparison to the possible benefits you might receive.
Have You Considered a Specialized Policy? If your term life insurance coverage has expired, but you still have a balance on your mortgage, you might want to consider purchasing a specialized mortgage life insurance policy. The payout on a mortgage life insurance policy decreases in value over time (to mirror the declining balance of your mortgage as you pay it off), and can help make sure that your spouse can continue to live in your home even if you pass away before you finish paying your mortgage.
There are a number of important decisions that you’ll have to make as you enter retirement, and whether to keep your life insurance is one of them. By objectively assessing your needs, your current coverages and the costs of continuing or obtaining new coverage you’ll be able to reach the right decision for you.
We usually purchase our first life insurance policies when we get married or when we start to have or adopt children. The main reason for getting life insurance, of course, is to ensure that the dependents of the insured person will have continued financial security after the insured individual passes away. But does that mean that once the insured person retires, and the kids have moved out of the house, that there’s no longer any need for life insurance?