Insurance in Retirement: Should I Keep It or Just Let It Go?
Photo source: openverse, Flickr
If you’re like most people, you bought your first life insurance policy decades ago, back when you had a mortgage, young kids, and a long career ahead of you. It made sense then. The question worth asking now is whether it still makes sense today.
The Life Insurance You Bought for a Different Life
Think back to why you got that policy in the first place. Maybe it was to replace your income if something happened to you, so your spouse could keep the house and your kids could finish school. Maybe it was to cover a mortgage that felt enormous at the time.
Now look at where you actually stand. The mortgage might be paid off. The kids are grown and, ideally, no longer financially dependent on you. You’re not bringing home a pay cheque that needs replacing anymore. The original job that life insurance was hired to do may simply be finished.
That doesn’t mean every policy is dead weight. Here’s a quick way to think about it:
Signs You Still Need that Life Insurance
You probably still need life insurance if someone would face a financial burden after your death. That includes having a spouse who depends on your pension or Social Security income, carrying debts that could become someone else’s responsibility, or wanting to leave a specific inheritance or help cover estate taxes. Life insurance can also play an important role in funding a business succession plan. Additionally, if you already own a permanent life insurance policy with substantial cash value, keeping it may continue to provide valuable financial benefits.
This is When You Can Likely Scale Back or Drop It
You can likely scale back or even drop your life insurance if the financial reasons for having it no longer apply. For many retirees, this happens when their children are financially independent, the mortgage is paid off, and their savings are enough to cover final expenses.
If you have a term life policy that’s nearing the end of its coverage, it may make sense to let it expire rather than renew it at a higher cost. Likewise, if the premiums are putting a strain on your fixed retirement income or your spouse has sufficient retirement income of their own and wouldn’t face financial hardship without the policy, keeping life insurance may no longer be necessary.
This isn’t a one-size-fits-all decision, and we’re not saying “cancel your policy” as a blanket rule. We’re saying it’s worth taking a real look. Some retirees discover they’re paying several hundred dollars a month for a policy that no longer protects anyone who needs protecting. That money might do more for you sitting in a travel fund or covering rising health costs.
A financial advisor can help you run the numbers properly, factoring in your specific policy type, cash value, and tax implications, before you make any changes. This is a decision worth getting professional eyes on, not a quick cancel-it-and-move-on call.
