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9 Reasons To Get Life Insurance in Retirement

Feb 9, 2023 6 Minute Read

You gain a lot when you retire, including freedom from a strict work schedule and the ability to choose how you spend your time. However, you also lose a few things. You’ll obviously miss out on your consistent paycheck, but many people plan ahead to maintain income through retirement accounts and other means.

However, you may also no longer be covered by an employer-sponsored life insurance policy. As you get older, you’re more in need of financial protection and peace of mind, yet life insurance for seniors may be something you’ve yet to consider.

This article will explore the top nine reasons you may need life insurance as a retiree and the best policies to fit your needs and budget.

Why do you need life insurance in retirement?

You may have yet to prioritize getting life insurance in retirement, especially if you’re in a stable financial position. But even if you’ve paid off large debts like a mortgage and have savings for your spouse to live on, consider these nine compelling reasons why you might need life insurance after retirement.

1. Support dependent children or grandchildren

While many people consider their spouse when assessing the financial implications of passing away, it’s important to look at the impact on children and grandchildren too. If you have dependents like a disabled child or a grandchild that you support, a life insurance policy can provide them with financial protection in your absence and ensure they’ll be able to afford the care they need.

2. Cover final expenses

According to the National Council on Aging (NCOA), over 15 million older adults live in economic insecurity. For many seniors, it may be hard to cover even their final expenses. A life insurance policy could provide loved ones with the funds for funeral costs, final settlement expenses, and more. The proceeds from a life insurance policy’s death benefit could also help loved ones pay for travel to attend your burial or celebration of life, giving them the opportunity to grieve alongside others.

3. Leave an inheritance for loved ones

Many assets you leave behind will become part of your estate, which carries a sometimes significant tax liability. On the other hand, the death benefit of a life insurance policy is non-taxable, leaving your beneficiaries with more money after your passing.

Another benefit of your life insurance payout not being tied up in your estate is that loved ones can often receive the payment quickly. That means they could replace income to take more time off work to grieve or pay off large debts to alleviate some financial and mental burdens.

4. Pay estate taxes so loved ones won’t have to

If you’re concerned about the financial strain estate taxes may cause your family, you can take out a life insurance policy specifically to cover them. Using the death benefit from life insurance to cover estate taxes is one way to increase how much your loved ones receive from other assets you leave behind.

5. Help pay off debts you’ll still have in retirement

In 2016, the average senior-led household debt was $31,050, according to the NCOA. If you expect to carry debt into retirement, your life insurance could help pay it off and protect your loved ones from inheriting your debt burden.

6. Fund a child or grandchild’s education

A life insurance policy could be useful if you pay for the education of a child or a grandchild and would like to do so even if you pass away. Since there are no restrictions on how beneficiaries use the death benefit, you may consider creating a trust to assign as the beneficiary if you want to explicitly earmark your life insurance policy for educational expenses. An estate planning attorney can offer specifics on the process of creating a trust and using it to distribute life insurance proceeds.

7. Support loved ones if you’ll be taking on high-risk hobbies in retirement

For many seniors, retirement is a time to indulge in hobbies. If you’re on the adventurous side, you may consider taking up new hobbies like skydiving, mountain climbing, or even learning to fly a plane!

If your post-retirement plans include such high-risk hobbies, a life insurance policy can help support your family in the event of the unexpected. However, you must disclose those high-risk activities when applying for insurance to avoid problems with the death benefit payout later.

8. Use cash value as financial support during your life

Some permanent life insurance policies build cash value over time. Although these policies tend to be more expensive than term life insurance, you can use the cash value to pay for emergencies, unexpected medical expenses, or other financial needs while you’re alive.

9. Gift a meaningful charitable contribution

While you may focus primarily on caring for loved ones financially after you’re gone, you may also have a charitable cause that’s near to your heart. By assigning a charity as a life insurance beneficiary, you could leave some or all of your death benefit as a meaningful gift.

What type of life insurance is best for retirees?

Your life insurance options will depend on your budget, age, and coverage needs. You typically want to consider choosing term life insurance or permanent life insurance to offer financial protection after retirement.

Term life insurance

Affordable and flexible, term life insurance doesn’t expire as long as premiums are paid, and most policies offer a level premium and death benefit, meaning it’s easy to budget in advance. Term life coverage is for a set period, often between 10 and 30 years, and pays out a death benefit if you pass while the policy is active.

Permanent life insurance

Permanent life insurance lasts your whole life as long as premiums are paid. The most common type of permanent coverage is whole life insurance, which provides a lifetime of protection, pays a death benefit, and builds cash value. For more flexibility, you may choose universal life insurance, where you can adjust the coverage amount and death benefit. However, the cash value of a universal life insurance policy doesn’t grow at a fixed rate (unlike whole life insurance) and can fluctuate according to market conditions.

Find a life insurance policy to support your retirement goals

Explore your life insurance options from the comfort of your home and get a free quote from multiple companies through eFinancial. You can get quotes online or by phone, and our licensed agents will help you understand the different options and get you signed up on the same day.

FAQs about life insurance in retirement

How much life insurance should you have in retirement?

Life insurance coverage needs in retirement should be based on your age, health, financial situation, and the amount you want to leave for your beneficiaries. Remember to consider your budget and how much premium you can comfortably afford after retirement.

Are you ever too old to get life insurance?

Many insurers offer life insurance coverage up to 85, though the age limit will vary depending on the company and policy type. Since age is a primary factor in determining the cost of life insurance, older adults and seniors may find coverage is more expensive than if they had secured a policy at a younger age.

Is it better to have a 401(k) or life insurance in retirement?

A permanent life insurance policy and a 401(k) plan have a savings component, but there are different withdrawal restrictions. A financial professional or retirement planner can help you decide the most effective accounts to save for retirement.

How much does life insurance in retirement cost?

The cost of life insurance in retirement will depend on your age and health, as well as the type of policy and coverage amount you choose. Term life insurance is often more affordable, but coverage ends when the term expires. Permanent life insurance is more expensive, but you build cash value that you can access during your lifetime if needed.

Does everyone need life insurance in retirement?

If you have substantial savings, zero debt, and no dependents, you may not need a life insurance policy. But even with financial stability, a life insurance policy can often provide extra cash for certain events, such as estate planning, taxes, and funeral expenses.