Life Insurance in Retirement? – “To Keep or Not to Keep, That is the Question”

One of the more frequent questions we get when meeting with clients or potential clients is:“Should we keep our life insurance after we retire?” Unfortunately, there isn’t one right or wrong answer to this question.

Usually, the idea is to buy life insurance to replace income in the event of early death of a family breadwinner. Should someone die pre-maturely, there might not be enough income to support a surviving spouse and or children. Life insurance can make up this lost income, pay off a mortgage or help fund a college education. However, as we get older and accumulate wealth, the need for life insurance should decrease or be eliminated altogether. Ideally, at some point, your personal capital (savings) should be able replace any income lost because you have stopped working, either because of retirement or death. This idea is why many people just purchase term life insurance as their need for the coverage should stop after they accumulate enough personal savings.

While that concept is sound and does work for most people, it isn’t always the case. For instance, people often retire (or are forced to retire due to job elimination or poor health) without having accumulated enough savings. Also, when a spouse dies, the lower Social Security benefit is lost as is potentially a percentage of any pension payments. The impact of this on the retirement income plan should be reviewed to determine whether keeping the existing life insurance improves the chances of not running out of money. As part of our comprehensive financial planning approach, we always analyze the need for continuing with existing life insurance coverage. What really matters is whether continuing with the policy improves the “probability of success” of having enough money in retirement. If it does, then maybe the policy is worth keeping. If it doesn’t, then maybe the premiums paid for the life insurance coverage should be used for other purposes.

Of course, the economics of the life insurance policy always need to be reviewed as well. While keeping the coverage may improve the chance of success in retirement, a detailed review of the policy to see if the policy will stay in force, or if premiums will increase need to be considered. If the policy is too costly, then alternatives need to be considered.

If you would like a complementary life insurance review, please contact us to schedule an appointment.