As the date of your retirement nears, it’s likely that your term life insurance policy is also coming close to the end of its term. Now what? Do you renew your life insurance, even though you will soon be living off your retirement investments, or do you let the insurance lapse altogether? Though this question should have a fairly rational and cut-and-dried answer, many people base their decision on emotions rather than dollars and cents. While it may feel like you’re losing out on all that money you paid into your term life insurance if you simply let it lapse, there are only a few instances when it makes sense to renew life insurance during retirement. Here’s why:
1. Term life insurance keeps getting more expensive as you age. Eventually, the amount of money it takes to renew your insurance for another 10 to 20 year term becomes prohibitive. While it is possible to convert your term life insurance into a permanent (or whole life) policy, that will be more expensive than renewing a term policy. The benefits for permanent policies tend to be much larger, however, and can provide peace of mind if you are one of few individuals who might need it.
2. Most families are not in the position to need your life insurance after you retire. Unless they had late-in-life children, most retirees can count on their spouses and children being financially stable even after they are gone. Term life insurance is geared toward young families who could not take the financial hit of losing one parent’s income. If you have not saved enough for retirement so that your spouse will be taken care of without you, or you have minor children still at home, then it’s probably a good idea to maintain your life insurance. Otherwise, you could probably find something other than premiums to spend your money on.
3. Even if you do need further insurance after retirement, you probably don’t need nearly as much as you once did. Someone who is at the mid-career stage of life needs to buy enough life insurance to take care of a family’s current financial needs as well as their future needs. But life insurance after retirement does not need quite the same level of payout. In many cases, you would only need to make sure that your final expenses are taken care of.
Life insurance is a difficult topic to think about, let alone discuss. No one wants to think about what will happen to his family after he is gone, and it can be easier to just throw money at the problem in the form of insurance premiums. But rather than waste your money on something you don’t need, do yourself the favor of thinking about what is really necessary. That will leave you and your family more money to enjoy while you’re here.