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Do You Need Life Insurance in Retirement?

By on January 15, 2012 in Insurance, Life Insurance

Do You Need Life Insurance in Retirement?Having adequate life insurance is one of the first things you should do as you are setting up your finances for the long term. But once you reach the finish line – retirement – do you need to keep a life insurance policy in place?

Why We Buy Life Insurance

Life insurance, specifically term life insurance, is a great way to provide financial protection for you and your family. There are two main reasons we buy life insurance…

To provide financial security for our family

The number one reason to buy life insurance is to provide financial security for the family we leave behind when we die unexpectedly. If you are a two income family and one income suddenly disappears, the results can be financially crushing. When the life insurance company sends your family a six or seven-figure check, it can stabilize their finances for a long time. That life insurance payment can pay off the house or be used as a buffer while everyone adjusts to a new budget and level of income.

To provide an inheritance

A secondary use of life insurance is to provide an inheritance to your family. Some people buy life insurance even when their families could survive just fine without their income. The insurance payment provides a healthy nest egg which is passed on to the next generation.

Does Life Insurance Meet These Goals in Retirement?

Once you reach retirement – assuming retirement means a financially healthy retirement due to proper financial planning throughout life – do you need life insurance? Does it meet the two goals of life insurance listed above?

Providing for your family

If you are in retirement your kids have moved out and are living on their own. They are no longer dependent upon your income. Unless your spouse could not live off of the retirement funds you have saved up together, life insurance is not necessary. The only way it would be necessary would be if your spouse was still living and your nest egg was not as large as it would need to be for them to live off of it for the remainder of their life.

Providing an inheritance

However, if your goal is to provide an inheritance to your family after you are gone, a life insurance policy could still be useful during retirement. The tricky part is finding a term life insurance company that will write on a policy on you in a way that makes financial sense for the family. If your life expectancy is age 85 and you are currently age 75, you and your family are gambling with the insurance company that you won’t make it to the end of the term policy.

Should You Buy Life Insurance in Retirement?

If your nest egg won’t provide a secure retirement for your spouse or if you want to provide a nest egg for your family, buying a life insurance policy during retirement makes sense. Otherwise, you’re just giving up income today for a large payout for your family at your death.

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