When you first start your professional life and have no one depending on you and no real assets or debts, life insurance is often not on the radar screen. The purpose of life insurance is to pay your debts and put your dependents in at least, as solid a financial position as if you were alive. Once you are married and have children and a mortgage, life insurance becomes a critical part of protecting the biggest asset you have - you!

TUTORIAL: Intro To Insurance

By the time you're retired, though, it is likely that your children are grown and have left the nest. You may have more assets and have paid down your debt. There is a possibility that you no longer need to carry life insurance. Here's a rundown on factors to consider when deciding to either buy or drop life insurance.

Your Debts and Assets
If you own your own home, in retirement, you likely have paid down a significant portion (if not all) of your mortgage. Your net worth may have risen substantially above its level when you were working. If your net assets and future pension entitlements will be enough to leave your spouse comfortable if you were to die, you may not need life insurance to carry out your estate's wishes. (For related reading, see What's Your Net Worth Telling You?)

Estate Planning Issues
Life insurance is often used as an estate planning tool to ensure that both the estate and the beneficiaries have enough cash to pay the final income tax bill and any transfer or estate taxes. If real property is being transferred, this can be an issue for some executors or beneficiaries who find themselves having to sell the property to pay the taxes.

Charitable Giving
Life insurance can also be used to create a legacy gift. If you want to provide a substantial financial gift on your death to an organization or foundation, you can make them the beneficiaries of your policy. In certain situations, the premiums paid on the policy can be deducted as charitable contributions. (For related reading, see Using Life Insurance To Make Charitable Donations.)

Your Existing Insurance
Life insurance premiums rise the older you are when you first take it out. Term life allows you to be insured for a set length of time (usually between five and 20 years), and then a new premium is set to renew the policy. If you have to renew after you are 60, the premiums are likely to be astronomical. A whole life policy, on the other hand, insures you until you die. Often, the premiums do not change over the course of the policy and it builds an investment portion that you can withdraw or borrow against in later years. The premiums are often much higher than term life. The type of insurance you already have makes a difference because, if you have to purchase new insurance in your retirement, the premiums may not be affordable. However, if you still have several years left on your term policy or, if you have an existing whole life policy, keeping up with the premiums can pay benefits down the road.

Your Health
Premiums for life insurance are high when you are in retirement, but you may not even be able to get a new policy if you are ill or have ongoing health problems. If you did not obtain life insurance while you were still healthy, it may be too late when you are sick. In that situation, it is important to use your income to ensure that you can pay for health care and that any extra goes to pay down debt. (There are many benefits to owning a life insurance policy. For more, see Life Insurance: How To Get The Most Out Of Your Policy.)

The Bottom Line
Whether you need life insurance in your retirement depends on your existing insurance and your goals for passing on your net wealth to your beneficiaries. Many retirees no longer have a need for life insurance.

Related Articles
  1. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  2. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  3. Retirement

    Read This Before You Retire in the Philippines

    The Philippines has a warm climate, a low cost of living and plenty of people who speak English. What to do next if you think you want to retire there.
  4. Insurance

    How Life Insurance Works in a Divorce

    Learn the implications of life insurance in a divorce situation, and identify the steps you should take to ensure your policies are sorted out post-divorce.
  5. Retirement

    4 Books Every Retiree Should Read

    Learn more about the current financial situations retirees are facing and discover four books that every prospective and current retiree must read.
  6. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  7. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  8. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  9. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  10. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  1. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
  2. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  3. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  4. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  5. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  6. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>

You May Also Like

Trading Center