Among all of the protections that financial advisers recommend, life insurance during retirement may be the most difficult to come to terms with. Why? Because it’s an benefit that you’re guaranteed to never see. It’s a protection for your survivors alone. A selfless gesture to those you love and care about the most. That’s a good thing right? If it’s a benefit for your survivors it’s not a question of whether you need it but a question of whether they need it.
Do They Need You to be Covered?
Just like in all things it really depends on the individual – you. If you were no longer around, would they financially suffer? The biggest reason for life insurance when you were younger was for income replacement to protect your dependents. Most people in your position no longer have dependent children in the house which relieves some of that need. The biggest mistake people make when considering life insurance during retirement is trying to buy too much. Commercials with promises of $500,000 in coverage for $30 a month can give an unrealistic expectation for the cost. Later, when you get realistic quotes the disappointment causes you to abandon the topic all together. Now that your circumstances are different it’s time to take a second look the most common risks they face from your early departure.
The Final Expenses
The most common reason to have a life insurance policy in retirement is simply to cover the cost of final expenses. The average funeral costs $7,181. That $7,181 includes a viewing and burial, embalming, hearse, transfer of remains, service fee and more. Keeping in mind that inflation over the last 30 years has averaged 2.62%. $7,181 adjusted for inflation over 20 years is $12,045. It’s safe to say that anywhere from 10 to 15 thousand dollars in coverage should be enough to cover these expenses.
There are life insurance policies that are specifically designed for this purpose alone. They are generally easy to purchase with little or no health considerations and will cover anywhere from $2,000 to $50,000 death benefit. Pay close attention to how the monthly premiums work for these policies to ensure the price is fixed monthly and will not increase. Also be sure that the policy is guaranteed renewable until death.
Are you still paying down debt on vehicles, mortgage, personal loan, medical bills ect? Don’t feel like you’re alone. According to the Transamerica Center for Retirement Studies, 4 out of 10 retirees say that paying off debt is currently a financial priority. 3 out of 10 say that credit card debt is their financial priority. Other debt concerns include mortgage debt, consumer debt, medical bills, even student loans. If debt is still following you around you’ll want to spare your family the hassle of dealing with it themselves with a life insurance policy.
Term life insurance would be a good fit as it is less expensive due to its temporary nature. No need to get over the top coverage here as we assume that the debt will be gone at some point.
Does Someone Depend on Your Income?
Social Security will allow your spouse to assume your federal income but not in addition to theirs. If you have another form of income that others rely on then you may want to consider getting this covered with a life insurance policy. The obvious question is whether or not you’re still working and do your dependents still rely on this income? What’s not as obvious is whether you have a pension that they would be able to access. Perhaps you have an annuity that doesn’t have a beneficiary. In this case you could be surrendering all that income with no way to get it back.
In the end remember that if life insurance during retirement is necessary then contact your insurance broker for advice as well as quotes.