Some individuals do have a need for life insurance in retirement. This is when permanent life insurance is handy. Let’s go over the top ten reasons why you may need life insurance after you leave the workforce.
Ten Reasons Why You May Need Life Insurance in Retirement
1. A life insurance policy’s death benefit is a source of cash for final expenses and estate settlement costs, including estate and inheritance taxes.
The proceeds from a life insurance policy can be used to help pay for funeral costs and final expenses.
They can also help pay estate and inheritance taxes on the legacy you hope to pass on. This is especially helpful if you have a large estate.
» Compare: Final expense life insurance quotes
2. You may still be working in retirement! Life insurance will replace lost income.
Many people at retirement age will continue to work full or part time and will still have a need to replace income in the event of their death. Life insurance will replace the paychecks that no longer arrive.
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3. Life insurance can be used to replace all or a part of your pension benefits.
If your spouse relies on your Social Security or retirement benefits, they may no longer be eligible to receive these funds if you pass away. The death benefit provided by life insurance can replace these lost benefits.
4. The life insurance policy death benefit can be used to pay off mortgages or other debt.
It would, of course, be lovely to be debt-free in retirement, but the reality is that this is not the case for everyone. Life insurance proceeds provide a safe, secure way to help your loved ones pay off debts so it doesn’t become their responsibility.
5. Responsibilities don’t retire when you do.
Today, many people heading into retirement still have people depending on them, whether that’s a spouse, children, grandchildren, or elderly parents. Life insurance is a great way to continue providing for the people you love.
6. Life insurance can help create or protect a legacy.
Inherited assets, such as traditional IRAs and tax-deferred annuities that bring with them an income tax liability, may benefit from life insurance proceeds.
Planning techniques such as Roth conversions and stretch IRAs can also enhance your legacy. These planning techniques usually require or benefit from the liquidity that life insurance can provide. Work with a financial planner if this is something you are interested in.
7. Your employer-sponsored group life insurance plan could retire when you do. An individual life insurance policy can replace any group coverage you lose when you retire.
While you may have some life insurance through work, if you retire, change jobs, or become self-employed, you may lose that coverage. This is why we recommend not relying solely on your employer-sponsored life insurance plan.
To make sure you have enough life insurance after you retire, buy individual life insurance now, even if you have group life insurance, because premiums will increase as you age and if you develop health issues.
8. Policy withdrawals or loans can be used to supplement your retirement income.
Employer-sponsored retirement plans, such as a 401(k), typically replace only part of pre-retirement income.
A permanent life insurance policy offers access to policy cash value during retirement, which you can use whether you decide to start a business, pursue a hobby, or handle an emergency. Outstanding loans and withdrawals, however, will reduce policy cash values and the death benefit, and may have tax consequences, so talk with your agent about the pros and cons before taking a loan out on your policy.
9. If your policy has an accelerated death benefit rider, a portion of the proceeds can be accessed if you become terminally ill or confined to a nursing home.
Living longer means more time to enjoy your favorite things, but how will this affect your retirement resources? You may live 15 or 20 years longer than you planned, if you have health issues, the costs of daily living really add up.
Ask about getting an accelerated death benefit rider added onto your policy (most policies do include this rider for free). This rider enables you to receive a lump sum portion of your death benefit to help pay expenses if you become terminally ill or need to live in a nursing home.
10. You may want to continue supporting your favorite charity.
Did you know you can name your favorite charity organization as your policy’s beneficiary? Because gifts to charities are tax deductible, your gift will not be subject to estate taxes.
» Learn more: Using Life Insurance to Help Your Favorite Charity
Term life insurance is great for those who just want coverage during a specific period of time in their lives to protect those who rely on their income. Permanent life insurance is great if you want lifelong coverage. Bundling term and permanent policies is a great way to cover all your bases.
» Calculate: Life insurance needs calculator
Start the process by getting a term life insurance quote or you can contact us and we can talk through what type of life insurance is best for your needs, whether that’s a term policy, a permanent policy, or owning multiple policies. We’ll work with you and your budget to help you find the right plan.
There’s no time like the present to start protecting your future and the future of your loved ones.
About the writer
Natasha Cornelius, CLU
Senior Editor and Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.