Do you need Life Insurance in Retirement?, Ep #195

Over the past few weeks, I’ve had several clients and prospective clients ask me the same question: “Should I keep my life insurance in retirement?” Life insurance is something we all tend to think of as essential when we’re younger (when we’ve got a mortgage, kids at home, maybe only one working spouse). But once you’re nearing or in retirement, things change. So, the question becomes: Does it still make sense to pay for life insurance?

In many cases, the answer depends on your goals and financial picture. I’ve seen cases where people are paying big premiums for small death benefits that won’t make a meaningful impact in their overall financial plan. Life insurance is a tool. If you no longer need the tool, why keep paying for it?

That said, there are still some great reasons to have life insurance in retirement. I’ve worked with clients who maintain policies to fulfill charitable goals. That’s their retirement vision. Others use life insurance for legacy planning, making sure a tax-free benefit goes to their children, a trust, or someone they care deeply about. Life insurance can also be part of pension planning, especially for folks using pension maximization strategies to leave something behind for a surviving spouse.

Now, if you’ve got permanent life insurance with a cash value, then you need to understand how it works. I always recommend talking to a fiduciary advisor first. These policies can be complicated, so it’s worth reviewing them carefully to make sure they’re still serving your needs. One thing I’ve seen time and again is that people misunderstand their policies. So be cautious because life insurance contracts can have all kinds of fine print. If you don’t truly understand how it works, get some help reviewing it.

And finally, don’t lose sight of your why. Your goals should drive all your financial decisions. So ask yourself, what do you want to protect? Who do you want to help? Whether it’s your spouse, your kids, your church, or your community, life insurance can be a powerful tool when used intentionally.

You will want to hear this episode if you are interested in…

  • (00:00) Intro.
  • (03:20) Do you need life insurance in retirement?
  • (07:38) Does it make sense to pay for life insurance? What’s the cost to benefit?
  • (09:43) Problems with life insurance.
  • (15:03) Benefits of having a life insurance policy in retirement? 

Life Insurance in Retirement is Not for Everyone

When people ask me whether they still need life insurance in retirement, I tell them: it depends on your goals, your financial situation, and who you’re trying to protect. If you’re debt-free, your house is paid off, the kids are grown and financially independent, and your retirement accounts are in good shape, then you might not need it anymore.

I had a client recently ask, “Are we wasting money keeping this policy?” And for them, the answer was yes. But for others, the story’s different. If you’ve got a mortgage, a spouse who would struggle financially without you, or anyone who relies on your income, then life insurance might still play a vital role even after you retire.

Is Permanent Life Insurance Serving You?

Another big topic I often see is confusion around permanent life insurance policies, whole life, universal life, variable universal life, you name it. These policies often have cash value, and many people don’t fully understand how they work or what they’re really worth. I’ve reviewed policies where the death benefit is only $10,000–$25,000, and the person is still paying high premiums. In many cases, if you’re over 59½ and you want to cash out, you can access the cash value with minimal tax impact, depending on your cost basis.

For example, if you’ve paid $30,000 into the policy and the cash value is $45,000, that $15,000 gain would be taxable as ordinary income. I always recommend speaking with a CPA or fiduciary before making a move, but the key is understanding the numbers and whether that policy is still serving you.

How Your Financial Goals Direct Life Insurance Needs

Lastly, don’t forget your goals, your why. Life insurance isn’t just about replacing income; it can be a powerful tool to help you leave a legacy. I’ve worked with a couple who each carry a $1 million policy with their church as the beneficiary because that was part of their retirement vision. Another client is using her policy to fund a college scholarship because a scholarship changed the course of her own life.

These stories are reminders that your financial decisions should reflect your values and what matters most to you. Life insurance can still have purpose in retirement, but only if it’s tied to something meaningful. As I always say: dream big, and make your money work for the life you want to live and the legacy you want to leave behind.

 

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