How Important Is Life Insurance After You Retire?

For millions of people, life insurance brings peace of mind. In the event of your untimely death, a life insurance policy could cover expenses related to your funeral, make sure your family is financially secure, and even provide them with supplemental income as they cope with your passing. Most people start taking life insurance seriously when they have small children, but what happens when you’re older and your children are grown? Do you still need a life insurance policy after you retire?

Life Insurance Options

We’re operating with a few assumptions here. First, you’ve held a life insurance policy for some time. Second, you’re continuing to make payments on it. Third, you’re retired (or will be retiring soon), and are wondering whether it’s worth holding onto the policy.

If you’re continuing to make payments, you may wonder whether those payments are providing any real value to you and your family—especially if those premiums tend to rise, as is likely the case as you get older and/or as your health declines. But what other options are there?

If pressed, you could terminate the policy as a “cash surrender.” In this case, you’d end the policy before it reaches maturity, and in return, you’d get a specific value of cash based on your current policy and other factors (like your health).

Typically, this value is far less than the benefits your beneficiaries would get upon your death. You can also pursue a life settlement, wherein you’ll sell your life insurance policy to a third party with whom you have no familial or business connection. In this scenario, you’ll receive more than the cash surrender of your policy, but less than the death benefits of your policy, and another business or individual will take ownership of your policy.

Is Life Insurance Necessary?

After you retire, life insurance may no longer be as important or as beneficial as it used to be. Ask yourself these questions:

1. Do you have significant assets? Have you accumulated significant assets throughout your career, and are you retaining them into retirement? Take a look at all your assets and liabilities, and get an estimate of your current net worth. Life insurance is often intended to cover expenses related to your death and provide additional money for your family members. But if you currently have plenty of assets to your name, all your liabilities and expenses may already be covered, and you may be able to leave behind plenty of assets for your family members to receive upon your death.
2. Do you still have any dependents? One of the most important perks of a life insurance policy is resting easy, knowing your dependents will be taken care of in the event of your death. But if you don’t have any dependents, is it still important? If, for example, your spouse has their own retirement savings to sustain them and your kids haven’t lived at home in decades, life insurance may simply be less important than it used to be.
3. What benefits are you currently receiving? Think about your current level of income, and what benefits you’re receiving. If, for example, you have ample benefits coming in, you can set aside some money of your own to cover expenses related to your death (or provide a pocket of funds for your children and grandchildren), lessening your need for life insurance. If you don’t have children to worry about and you aren’t living on much income, life insurance may be a costly additional expense with minimal benefits.
4. Are your children doing well? If you don’t have any children, life insurance becomes less important in retirement. If you have children who are fully grown adults with robust financial health and enough experience to sustain themselves indefinitely, insurance becomes less important as well. However, if your children are not fully grown or if they’re still living with you, life insurance may help them succeed after your demise.
5. How much are you paying in premiums? Over time, the premiums on most life insurance policies tend to increase. This is because your health may gradually deteriorate and your chances of dying will, statistically, increase with each passing year. At some point, the potential benefits you could receive from a life insurance policy will be outweighed by the real costs of monthly payments.

The Bottom Line

For many retirees, life insurance is no longer as necessary or as useful as it was in the past. In addition, your premium payments may have risen. There are many options available to you, including getting a life settlement or surrendering the policy for cash, and many of them will be more valuable to you and your family than the insurance policy maturing to term.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.