Do You Need Life Insurance After You Retire?

While you were working, you likely spent plenty of time planning (and saving) for retirement. Unfortunately, retirement savings are often not as strong as most retirees believe. 

Investing in a life insurance policy can help you cover end-of-life costs, help your spouse maintain a comfortable life and settle your estate after you pass on. Our guide will help you learn more about the benefits of maintaining life insurance throughout your retirement.   

Why is Life Insurance Important?

If you received a term life insurance policy through your employer that’s now expired, you’ll be met with a choice when you enter retirement: do you take out a new policy or do you continue into retirement without a life insurance policy? 

Life insurance is an important protection to have, even through retirement. It can provide lost income for your family when you’re no longer living. This will enable your loved ones to continue living their life without needing to worry about financial distress from things like funeral expenses or mortgage payments. 

It can also provide a way to pay for any necessary services that you may have provided for your family. For example, if you provided care for grandchildren, your family will need to pay for day care services after you pass on. Life insurance can help cover these costs, as there is no limitation on how your family can use your insurance benefits. 

Even if you don’t have a partner or children, life insurance is still important. A policy can help pay for any bills or debts that you leave behind. It can also pay for your funeral service and burial, which can be a hefty expense for your surviving loved ones or siblings.

Having a life insurance policy can be an all-around stress-reliever. It can relieve you of the stress you may feel about leaving your family. It can also relieve the stress left on your family when you are no longer with them so they can grieve without having to worry about how they’ll pay their bills. 

Why Not Rely on Retirement Funds?

You probably began putting away money for retirement early in your career. While most people assume that they’ll live off their retirement savings, the unfortunate truth is that retirement accounts alone might not be enough. The main reason to not rely on retirement funds alone is because these funds are finite. These funds only last for a certain amount of time and that amount of time could be way less than you need or expected. 

Pensions can leave you with a plethora of problems as well. One major issue that men and women with pensions often face is that of underfunding. Pensions can often go bankrupt due to financial mismanagement on the part of the account managers or because your employer simply didn’t fund a sufficient pension to cover all of the costs associated with living through a long, fruitful retirement. 

If you’re choosing to gather your funds through investing, this could be difficult. The stock market is fickle and your investments aren’t matched by a company like how they would be in a 401(k). Investing in a taxable brokerage account after you begin retirement will likely not be enough to help supplement your income. 

Retirements funds can easily be reduced due to debt, especially when interest rates on debt outmatch retirement investment earnings. If you have a life insurance policy, you don’t have to worry as much about the retirement funds being reduced by taxes after you pass on. This can be a major benefit for your surviving loved ones. 

Do You Need A Specific Type of Insurance?

There are 2 main types of life insurance: term and whole life. Term life insurance lasts for a certain number of years, referred to as the “term” of your policy. 

The term is set when you enroll in your policy. If you outlive the term of your policy, your policy is closed without paying out a death benefit. Though term life insurance is significantly more affordable than whole life insurance (especially as you age), it can expire and leave your loved ones without a death benefit.

A whole life insurance policy is a permanent policy that does not expire. This type of policy is more expensive, but it has both a death benefit and a cash value. 

A portion of the premium you pay goes into the cash value which accumulates over time and can be withdrawn once it reaches a certain amount. If you’re looking for a way to supplement your retirement income, a whole life insurance policy might be an option worth considering.

The best way to determine the specific type of policy you need is to look at your obligations and your liquid assets. By calculating your net worth, you will be able to determine the amount of money that you have to sustain yourself through retirement — and how much coverage you might want to purchase to leave behind to family members after you die. 

As a general rule, we recommend purchasing a policy with a death benefit equal to at least 3 years’ of the salary you earned while you were working. 

Nursing Care is an Expense Everyone Forgets

According to Genworth’s 2020 Cost of Care Survey, the yearly cost for a private room in a nursing home is $105,850. The annual cost of a shared room isn’t much better at $93,075 annually, and even an in-home health aide can be close to $5,000 a month. 

These expenses can be a financial burden, but they’re oftentimes unavoidable. If you die without a life insurance policy, you could be leaving your loved ones to cover this expense on their own if they require this highly-specialized type of care.

A life insurance policy can allow you to leave an amount of money that can pay for a nursing home or in-home medical care if needed. You can also look into long term care insurance, which can help supplement your coverage and pay for these types of expenses. Speak with a financial advisor or accountant to learn more about how supplemental life insurance can help protect your family after you pass on. 

What About the Kids?

If you’re a grandparent or parent, you might want to leave money or assets behind for your loved ones. A life insurance policy could help pay for a grandchild’s college tuition, cover the mortgage on a family home or vacation home that you want to leave to your family, fund a family reunion and much more. There are so many expenses that you may not take into consideration that could be supported by life insurance. 

If you don’t have any children or family that you want to leave any money or valuables to, you can also set up a policy which will give the death benefit to a charity or non-profit of your choice. This can provide you with a final way to provide funds to an organization that you really believe in. 

What About Your Spouse?

If you do not have a life insurance policy, a major part, if not all, of your retirement funds could go straight to settling your estate. Assuming you did not name anyone as your beneficiary when you started your retirement fund, all those savings are subject to the probate process. If you invest in a life insurance policy and name your spouse as your beneficiary, your death benefit won’t immediately go to pay off debts after you pass. 

A life insurance policy can guarantee the financial security of your spouse. It can fill any gaps if your spouse were to lose any portion of your pension or other monthly payment. Even if your spouse is self-sufficient, your death could leave them with burdens that you nor they even thought about.

Compare Life Insurance

One of the most difficult parts of buying insurance is choosing which company that you want to work with. Consider beginning your search with a few of our favorite insurance providers below. 

Should You Buy Life Insurance?

While most people believe that they can live entirely using your retirement savings, the truth is that this likely won’t be a sufficient amount of money for you and your spouse. Even if you do have a sufficient amount of money to cover your retirement expenses, you could end up leaving your loved ones with major financial burdens after you pass on. 

Investing in a life insurance policy now (or at least exploring your options) can help you and your family rest easier at night.  

Frequently Asked Questions