If you have recently retired, or you are about to, then you will probably be wondering what you need to do about an existing life insurance policy, or you may be asking yourself if you need to take out another policy if life insurance was part of your employee benefits package.
Whether or not it is advisable to continue to pay for life insurance depends entirely upon your personal circumstances, so figuring out the answer to the question ‘do you need life insurance after retirement’ is not usually an easy task.
Before retirement the majority of families rely on their household income to pay for everyday living expenses; this may be a joint or sole income depending on whether the household has just one or two parents who work. If a breadwinner were to die then the remaining family could be plunged into financial disaster. Basically, a life insurance policy will provide a financial buffer should the worst happen, and provide an invaluable source of income.
The first factor that you need to take into account is whether, after retirement, you will still continue to earn an outside income. If you intend to rely solely on your retirement savings and social security payments then life insurance is probably unnecessary. This is because your surviving family members would most likely still continue to receive payments from your retirement investments and pensions, and social security would pay some sort of survivor benefit to your spouse.
The second area that you need to look at is the state of your finances, namely how much you owe. You may be fortunate enough to reach retirement age having paid off all your debts. However, researchers have found that in 2013 around thirty percent of all homeowners aged sixty-five and above still had a mortgage, and a surprising twenty one percent of individuals aged seventy-five and over were still making mortgage payments in 2011. Similarly, in 2013 700,000 people of retirement age still owed money on a student loan. In general, if you do still have a large amount of debt then a life insurance policy could still be a good idea after you retire.
One of the main reasons that people take out life insurance is to safeguard the financial welfare of their dependants after they die. As we approach retirement age we may find that our children have left home and are completely self-sufficient, as indeed is our spouse. If this is the case then a life insurance policy would, in all likelihood, not be necessary. However, if your children have special needs and require specialised care, or you still have children living at home who depend on you financially then life insurance would still be of benefit.
If you have a large number of assets then life insurance can be used after your death to pay for taxes on your estate. If this is the case then it is advisable that you consult an experienced financial advisor who will discuss your options with you.
In general, if you no longer have an income that you might need to replace, few debts, and a family that is self-sufficient you can probably discontinue your life insurance policy. The question you need to ask yourself is; will someone experience a serious financial loss when I die?
Of course, you may simply decide that you wish to continue with your life insurance policy in order to leave a nest-egg to your surviving family members. You could even choose to donate the life insurance pay-out to charity.
If you are starting a life insurance policy for the first time in your later years you need to take into consideration how much cover you would require, and for how long. With regard to how much cover you need you would have to work out how much money would be required to sustain your dependant’s current standard of living, or to pay off debts, including, perhaps, a mortgage. With regard to how long you would need to have life cover in place then you need to figure out a timescale during which your dependants would most likely suffer a financial loss after you die. This timescale would most likely be less at retirement age than it would be when you are working in full-time employment as, for example, your surviving spouse could be approaching retirement age themselves so would not be dependent upon your income.
There are two main types of life insurance policy available; term life insurance and permanent life insurance. If the financial loss upon your death is set to decrease over time then term insurance is ideal as the policy pays out less as each year passes. However, if, for example, you run a thriving business the value of your estate would increase, and therefore so would any estate taxes. Permanent life insurance is also a good choice if you wish to leave money to charity; although it is more expensive than a term policy.
If you are at all unsure about the suitability of a life insurance policy when you retire it pays to consult an independent financial advisor who can analyse your particular set of circumstances and advise you accordingly. However, if you do still have young, dependent, children, a spouse who would lose a substantial part of their income upon your death, or an estate that would be subject to estate tax then life insurance is probably a safe bet.