Through your employer or based on your own financial planning, you may have acquired a life insurance policy over the years. Generally, those with a life insurance policy have it so that their loved ones will be taken care of financially if they were to unexpectedly pass away. But, do you really need to keep the policy after you have reached retirement age?
While most of the literature on this topic is divided on if you will need to continue to have a life insurance policy or not – The true answer actually depends on your individual situation.
Here are the most common reasons want you may want to still have a life insurance policy after your retirement:
- If you are still working after retirement to make ends meet.
- You want your funeral costs and final expenses to be covered by you and not your loved ones.
- If your loved ones will experience a financial loss when you die.
- You want your family (or favorite charity) to benefit from your death.
- You have a non-working or low-income-earning spouse.
- If you have non-adult children.
- You have a large estate (the estate will be subject to estate tax, which may impact any payout to your surviving family).
- If you are a business owner, business partner or a key employee employed by a small business.
- You have debts in excess of your assets.
- If you want to pay for your children or grandchildren’s college or further education.
Here are the most common reasons why you may NOT need a life insurance policy after retirement:
- If you have stopped working and are able to live off of Social Security and your retirement savings alone.
- If your loved ones are financially independent from you and will not incur a financial loss when you die.
- You are single with no children.
- You are not legally responsible for any of your debts (such as a cosigner on a loan).
- Your debts and burial expenses will be taken care of by other resources in your estate.
What is the right amount of life insurance to have?
Again, the answer to the question of how much life insurance to have really depends on your individual situation. How much do you support loved ones in your life right now – or how much do you want them gain after you pass away?
If there is an amount of money that would help your loved ones pay off a mortgage… decrease their debt… or have as general income for a certain number of years after you pass – that total can be a good starting place in figuring out how much you may want to take out a policy for.
You’ll also want to take into consideration how many months or years your loved ones may incur a financial loss when you die.
Retirement Living recommends getting a policy worth 10 times your income, plus $100,000 per child for college expenses.
You could also figure out how much you may want a policy for by considering the DIME formula.
How To Use The DIME Formula:
This formula allows you look at the four major areas you want your life insurance policy to cover:
- Debt and final expenses:
- Not including your mortgage, add up your debts and estimate how much your funeral expenses might cost.
- Income:
- Choose the number of years your family will need to be provided for and multiply your salary by that number. Consider the number of years until your youngest child graduates high school.
- Mortgage:
- Calculate how much your family will need to pay off your mortgage.
- Education:
- As closely as you can, estimate how much it will cost to send your children to college.
If you still have questions, we recommend giving your financial advisor or planner a call to discuss your options. In the meantime, check out our article to learn if Term or Whole Life insurance may be a good fit for you.
Kate writes about retirement benefits for retirementinsurance.org. She has a Masters Degree in Social Work (MSW). She has over a decade of experience in assisting elderly and disabled populations navigate governmental and private programs to obtain the monetary assistance they need to lead better lives. As she watched her parents begin their own retirement journeys and navigate similar systems to obtain Social Security, Medicare and other retirement benefits, she gleaned a further personal knowledge about the topic and is eager to share what she has learned with others.