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Life Insurance Policies in Retirement: Yay or Nay?

Life Insurance Policies in Retirement: Yay or Nay?
By Kristina James
Published by Ruby

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One of the givens in most families is that one or both parents need to carry life insurance. But once you’ve reached retirement age, do you really need it?

 

Not just income replacement.

Life insurance is usually meant to replace lost income in case the primary-wage-earner in the family dies first.

But life insurance is also helpful if the surviving spouse is worried about funeral expenses and the cost to family members flying home to attend a funeral. Also, if your greatest desire is to leave money to children after you’re gone, life insurance is a way to do it.

In a nutshell, here’s why you would keep a life insurance policy:
  • You want to leave behind enough money to cover outstanding debts
  • You want to provide for dependents
  • You want to leave money to adult children or a charity
  • You need to take care of funeral expenses

 

… or not.

If none of those circumstances apply, consider whether the cost of a life insurance policy is worth it. If no one is counting on any financial help from you and if you already have a fully funded retirement plan in effect, you could reinvest those expensive monthly premiums into revenue-producing alternatives.

Or you could just decide that the money can be spent on your own use and enjoyment. After all, if you are spending $400 a month on life insurance, that money could easily fund a three-day getaway every month.

 

Something to think about.

Some older Americans still carry mortgages on their homes and life insurance may look like an appealing way to pay off that debt after a spouse’s death. But consider these factors before you decide.

Often a surviving spouse will want to downsize from a large home to one that’s more manageable and less expensive. This automatically pays off an existing mortgage. Also worth considering is that the surviving spouse’s living expenses will also go down, usually by about 30%.

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Peace of mind is invaluable.

There is actually a name for the fear that a lot of women have about what will happen to them if/when their spouse dies.

“Bag Lady Syndrome,” was first coined in the 1970s, and describes the fear many senior women have that they’ll wind up homeless. Statistics prove that this is not the case, but an irrational fear is a fear nonetheless. A recent study showed almost 50% of women with household incomes of $30,000 or higher often fear losing all their money.

If this is the case and there’s a genuine concern that, without the insurance, the surviving spouse won’t have enough money to live, keep the policy!

 

Where to start.

So how do you start to make an informed decision on this? You need to ask the insurance agent for an “In Force Ledger.” This is a complete accounting of the policy. Then you can look at it and see what type of policy it is and if there is any cash value to it.

Bear in mind that once you order that ledger, the agent will probably attempt to convince you to keep the policy. Life insurance is a product and the insurance agent doesn’t want to lose their commission on it.

This is where working with a certified financial planner (which is always a good idea in any case) will come in particularly useful, as that person can run that gauntlet for you.

 

A hard habit to break.

Most people started carrying life insurance when they got married and began having children. For some, that’s a 25- to 30-year habit, and habits are hard to break. But, whatever you decide, it’s always worth sitting down with a professional, going over all your finances and determining if those monthly premiums are still worth it… or if reinvesting that sum, or just enjoying it in the here and now, makes more sense.

By Kristina James