During your adult life, you have probably had life insurance. Many employers offer it as part of their benefits package, and you may not have given it a second thought. You knew it was there but did not know much about it. Or perhaps you purchased a policy as part of sound financial planning, especially if you have children.

Now, however, you are about to retire—or perhaps already have. Your employer no longer pays for your life insurance, and you must decide whether to buy a new policy or enter your later years without one. Today, your bank and investment accounts, and your needs, differ from those of your neighbors or friends. What is right for them may or may not be right for you. What is the correct choice?

How Does Life Insurance Fit After Retirement?

Before retirement, most families use most or all of their household income to maintain their lifestyle. If two people work, both incomes are generally essential to maintaining the family's standard of living, and the same is true if only one person works. If an income earner died, the household could face a financial emergency at one of the worst possible times.

The purpose of life insurance is to protect family members from lost income if you or another primary earner dies.

Like any insurance product, life insurance comes in several types. Term life insurance provides coverage for a set period, normally 10 to 30 years. Permanent life insurance, also called cash value insurance, is a lifetime policy often used in estate planning. It comes in two varieties: whole life and universal life. Here are some questions that can help you decide what you need.

Are You Still Earning Outside Income?

Considering life insurance's basic purpose, you may already have a fairly clear idea of your need for continued coverage. In the most basic sense, if you retire and no longer work to make ends meet, you probably do not need it. If you live on Social Security together with your retirement savings, there is no earned income to replace.

When you die, your family will continue receiving payments from your retirement accounts, and Social Security will pay a survivor benefit. However, that survivor benefit varies with your particular situation and will not equal what Social Security paid while you were alive.

Make sure you understand your benefit before making a decision about life insurance.

Do You Have Debt?

Ideally, you would reach retirement age debt-free, but that is not always the case. In fact, a 2018 report indicated that 46% of homeowners over age 65 still had a mortgage [see 1 in the References at the end of the article]. Another study, from Forbes, found that 32% of people age 70 or older were still making housing payments in 2019 [see 2 in the References at the end of the article].

Forbes research forecasts that student loan debt will be a problem for a growing number of retirees in the future. Over the past five years, student loan debt held by older adults has increased 71.5%, whether from remaining balances on their own loans or from cosigning loans for children or grandchildren [see 3 in the References at the end of the article].

Experts say continuing life insurance coverage could be a good idea if you are still paying off debt. Take a "better safe than sorry" approach unless those debt payments represent such a small share of your net worth that there is no risk of financial hardship.

Are Your Heirs—Your Children and Spouse—Self-Sufficient?

If you reach retirement with children who have left home and are supporting their own families, and your spouse is self-sufficient, you probably do not need life insurance. On the other hand, if you have children with special needs or children still living at home, you may want to keep it. Also, if your spouse would lose a substantial amount of pension income or another monthly payment, life insurance can fill that gap.

Would Life Insurance Help Your Estate?

Some people with substantial assets can use life insurance strategically, for example to address estate taxes. It could pay business debt, fund a buy-sell agreement related to your business or estate, or even fund retirement plans.

As you can imagine, using life insurance as a tax-efficient part of an estate plan is very complicated. You will need help from an attorney who specializes in estate planning.

Keep in mind that unless your estate has a net worth in the millions of dollars, estate tax considerations probably do not apply. You may therefore not need life insurance for this purpose, but consulting a qualified expert is a good idea to be sure.

The Dilemma: Insured or Uninsured?

Giving up life insurance after so long may seem counterproductive, but the truth may be that you no longer need it. If you have no income to replace, very little debt, a self-sufficient family, and no costly concerns about settling your estate, there is a strong chance you can say goodbye to that policy. In any case, when it comes to estate planning, you may need a different policy type or significant changes to your current policy.

This is the perfect question for a financial planner or an insurance consultant. Be cautious about simply asking your insurance agent. Because agents are often paid on commission, they may have an interest in keeping you in the policy even when you do not need it.

Feel free to consult our independent agents at Partners For Life.

References

1. Harvard University's Joint Center for Housing Studies. "Housing America's Older Adults 2019 ", page 7
2. Forbes. " Nearly 40% of Homes in the U.S. Are Free and Clear of a Mortgage ".
3. Forbes. " The Growing Trend of Retiree Student Loan Debt ".