Do you still need life insurance as a retiree? Despite what your insurance agent might say, this is a very legitimate question.
Over time, life insurance often becomes less necessary and more expensive — a combination that makes it an easy target as you look to trim expenses. However, for some retirees it doesn’t make sense to get rid of it.
Given how important of a decision this is, we highly recommend talking to professional planner. That said, you can also do some work on your own to figure out whether to maintain, scale-back, or eliminate your life insurance coverage.
As you start the process, here are five important questions to ask yourself:
1. How self-reliant are my dependents?
Life insurance is a vital safety net for young families since they often have high expenses and low savings. Over time, as children get older and nest eggs grow, that protection can become less necessary.
As you think about whether you need life insurance, take a look at your children, grandchildren, or other dependents. Are they counting on your income to meet their day-to-day needs? Or are they capable of paying their own expenses? If they are self-reliant you may be better off putting the money that you’re paying for premiums towards something else.
2. Does someone need my working income?
Retirement used to mean that you stop working completely. These days, that often isn’t the case. If you’re still working because savings, Social Security and pensions aren’t covering your expenses then it’s possible that your monthly income is supporting someone (a spouse, a dependent, or even an organization). Take a step back and think about who would be affected if your earnings disappeared.
3. Will my spouse be financially OK without me?
Many retirees maintain a life insurance policy because they are worried about their spouse’s welfare. This sometimes makes sense, especially if you have a pension or other income source that would be cut-off for your spouse if you passed away. However, often it is unnecessary.
Look at your savings and other assets — will your spouse be the primary beneficiary? Also, does your spouse have income sources of their own? If so, then you may be better off putting those insurance premiums towards daily expenses or simply in savings.
4. Do I have any large outstanding debts?
Do you have big mortgage payments that will continue for years? Have you taken out other sizeable loans? Will your spouse or dependents be responsible for these debts? If so, maintaining life insurance coverage may make sense. However, there may also be more effective ways to tackle those payments. We suggest sitting down with a financial advisor to talk through your options.
5. Do I have enough money saved for burial or funeral expenses?
Often life insurance payouts are used by family members or friends to pay for funeral expenses. Before you eliminate your coverage make sure that you’ve saved enough to cover those costs (which often range from $5,000 to $20,000+). If you don’t have that amount of cash put aside you may want to at least maintain a small life insurance policy to cover burial expenses.
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