A retired couple sits at an outdoor table and enjoy a conversation about purchasing life insurance after retirement.

Do I Need Life Insurance in Retirement?


Reaching retirement has many financial challenges, but life insurance may be an expense that you may not have even considered. Is it right for you?

As you get older, planning your affairs takes on increased importance. This includes not only considering the financial implications of being on a fixed income in retirement but also helping to plan for your loved ones down the road.

But as you weigh out expenses, you may be wondering what role life insurance plays, and how much is enough. It's an important consideration that can have implications for securing your loved ones' future. Knowing how life insurance in retirement works alongside your overall strategy can seem complex at first blush, but the benefits of getting a robust life insurance plan are worth understanding.

Understanding the Importance of Life Insurance

Why, exactly, is life insurance important in retirement? It's largely important in retirement for the same reasons that it's important earlier in life, albeit with a heightened sense of immediacy. Life insurance is designed to provide financial benefits in the event of your passing or a major change to your health. These plans can cover major accidents, such as a loss of a limb, or the policyholder’s death. Most life insurance policies will cover accidental death as well as natural causes.

Life insurance helps your loved ones and next-of-kin pay for the expenses incurred during funeral services, which averaged $12,790 in 2019. Your policy will likely offset these costs, reducing the burden on others to pay for your final arrangements. Most policies cover much more than these costs as well; most policies range from $250,000 to $1 million, meaning you can help pay lingering expenses beyond funeral costs, and typically bestow a portion of the payout to loved ones or charities of your choosing.

Bear in mind that life insurance is not akin to a financial investment. Policies may vary in the amount of money they pay out depending on several health factors and other considerations as part of your passing. These plans do play a role in your overall finances, though: a robust retirement and end-of-life plan should include life insurance, but by no means should it be the lynchpin of your strategy.

Navigating the Complexities

Finding the right life insurance policy can be tricky for anyone at any age. You’ll have to find the right mix of coverage and premium payments, which rise in accordance with the amount of your policy. Balancing your current personal finances, as well as your needs for the future, means opting for a plan that’s affordable in the present while also offering as much financial gain for when the policy pays out.

There’s also the term duration to consider. Life insurance plans tend to come in three varieties: 20-year policies, which offer more short-term coverage with lower annual premiums; 30-year policies, which come with higher premiums in exchange for longer coverage, and whole life terms, that come with the highest premium levels for total life coverage as long as premiums are paid in full and on time. Retirees aged 65 and older have to weigh the pros and cons of 20-year plans versus lifetime plans, as they may stand to save money upfront with a 20-year plan if they do not anticipate living beyond the end of the term. A whole life plan, however, offers a “set it and forget it” option, which can also provide coverage for those who live more than 20 years.

Premium costs play an important role, especially for seniors. Premiums tend to cost more across all levels of coverage. For example, healthy non-smoker 30-year-olds can expect to pay $133 for a $250,000 a 20-year term policy, $191 for a 30-year term, and $1,904 for a whole life term. People 65 or older, on the other hand, usually pay $908 for a 20-year policy, or, $7,015 for a whole life term policy. The reason for this discrepancy is the increased likelihood of passing away later in life—hence why there are few 30-year policies available. Insurers require policyholders to pay into their plans on a sliding scale, where younger participants pay less as they typically live longer. Bear in mind that your personal policy costs will vary based on health factors.

Finding Your Insurance Match

The financial and health factors that go along with finding the right insurance policy can feel dizzying. Although there are many considerations to make, the process itself is easier than it seems at first glance. Having a plan starts with anticipating future financial needs, current budgeting, and the right term length can take the fear out of picking the right policy.

Getting started is easy: use our life insurance calculator to find out how much life insurance you may need. This provides a better sense of how to balance premiums with coverage amounts depending on your budget, age, and more. You’ll also want to think about plans that don’t require a physical, as these can be an effective alternative to plans that require a physical exam to determine your risk and corresponding premium costs.

Last but not least, make sure you read the fine print of the policies under consideration. Pay special attention to any clauses that limit the amount a policy pays out depending on factors like cause of death, as these can curtail the amount of money your beneficiaries receive. Speaking with a qualified financial professional can also help demystify the process, and guide you through the specifics of each policy.

Life insurance can be a complicated topic, but as you get older it becomes more important than ever to have a solid plan. With forethought, you can make the process easier for both yourself and your loved ones to feel that you have a secure future.

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