You may wonder, “Do I need life insurance in retirement?” Most often, the answer is “No.” Sure, your odds of dying are higher than ever, but so too are the costs (premiums) you’ll pay to acquire a new life insurance policy.
What is Life Insurance For?
Recall the most important reason to purchase life insurance: to protect those financially dependent on you in case you should pass away. Other potential advantages, such as life insurance’s role as a forced savings program (for the whole-life product) or as tax-deferral source, are only of secondary importance.
Is Anyone Counting on you During Retirement?
During retirement you are, by definition, no longer working for money. As such, no one, not even you, is depending on your income from wages. During retirement, your lifestyle is supported by your savings, such as 401(k)s, IRAs, Roth IRAs, and so forth. Should you pass away before your spouse, all your assets can be made available to him/her through intelligent yet basic estate planning, such as a will.
In addition, you are likely receiving income from Social Security and, if you are fortunate, from the increasingly rare defined benefit pension. The higher of either your or your spouse’s Social Security benefit will continue to be paid to the survivor. Taken together, your surviving spouse can likely expect to live in the same comfort as prior to your passing. (Plus, the kids should be on their own by now.)
You Should Probably Pass on Life Insurance During Retirement
Sometimes, life insurance can make sense during retirement, especially for those who have large estates and who wish to fund the estate tax with life insurance. However, most Americans need not concern themselves with the estate tax. Furthermore, if money is tight, life insurance during retirement can be considered an unnecessary extravagance, certainly if alternative uses of the money include basics such as prescription drugs and food.