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Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
Fact checked by Fact checked by Vikki VelasquezVikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.
Part of the Series After You RetireThe Stages of Retirement
Managing Your Money
The Retirement Lifestyle
If you're about to enter retirement or are already there, you may wonder whether you still need life insurance. This question is more pressing if you lost employer-provided life insurance and you're wondering whether to buy a new life insurance policy for yourself. You could need life insurance in retirement to cover final expenses, pay off your final debts and estate taxes, fund a charitable contribution, or leave an inheritance. If you've already got these goals covered, then you likely no longer need life insurance.
Not surprisingly, there's no one-size-fits-all answer. Let's look at the different variables that impact your situation to determine the best answer for you and your family.
Prior to retirement, most families use most or all of their household income to support their lifestyle, as well as provide such services for the household as childcare. If two people work, both incomes are often essential to maintaining the family’s standard of living. If one person works, the same holds true, while the other is usually responsible for childcare and household duties. If either person were to pass away, the household could find itself in a financial emergency at one of the worst possible times.
After you retire and your kids grow up, you may no longer need life insurance to meet these goals. Still, there are other situations where it makes sense.
Stay-at-home partners often provide essential household services, such as childcare, which are expensive when outsourced.
Life insurance is a commonly used tool to protect against potential income and other losses. But like any insurance product, there are multiple types of life insurance. Some common ones to use in retirement include:
Which insurance companies are the best? Check out our rankings of the top term, whole life, and no-exam insurers.
When deciding whether you should maintain a life insurance policy in retirement, there are a few questions you should ask yourself. Consider these factors when making your decision.
You may already have a pretty good idea whether you need ongoing coverage. If you retire and no longer work to make ends meet, you probably don’t need life insurance in retirement. One exception is if you expect to owe estate taxes, in which case life insurance can be a good solution to cover the bill. You may also want to use life insurance to bequest a tax-free sum to your beneficiaries or to a charity.
When you die, your family can usually inherit your estate and receive payouts from your existing sources of income. Your named beneficiaries will receive your retirement accounts. However, inheriting an IRA can create tax consequences for family members, depending on who inherits it and the type of retirement account it is. And while Social Security pays a survivor benefit, that survivor benefit varies based on your unique situation and it won't be as much as Social Security paid while you were alive. Make sure you know what benefits your family stands to inherit, any tax consequences, and their income needs before deciding whether you need life insurance in retirement.
The average funeral costs between $7,000 and $12,000. Your family could also owe for your final medical bills as well as legal costs to process your will and estate. Do you want to cover these costs for your family? You could do so by buying a small life insurance policy in retirement. On the other hand, if you have enough in savings and you prepay your funeral while alive, you may not need life insurance after you retire to cover those expenses.
Ideally, you will arrive at retirement age debt-free, but that’s not always the case. In fact, more than 10 million Americans over the age of 65 had a mortgage in 2022. Approximately 41% of homeowners ages 65 to 79 still carry a mortgage, as do 31% of people ages 80 and older.
Student loan debt is expected to be a problem for an increasing number of retirees in the future, too. Some 3.6 million people over the age of 60 have more than $135 billion of student loans, as of Q4 2022. Over the past 20 years, student loan debt held by senior citizens has increased 19-fold — either the remnants of their own loans or loans co-signed for children or grandchildren.
Continuing life insurance coverage in retirement might be advised if you’re still paying off debt. Take a “better safe than sorry” approach unless those debt payments are such a small part of your net worth that would present no risk of financial difficulty. Also, cash value insurance provides the flexibility to take out a policy loan if you encounter unexpected expenses.
Whether or not you need life insurance in retirement also depends on whether you have a spouse or children.
If you have children who are out of the house and providing for their own families, for example, you likely do not need life insurance. On the other hand, if you have children with special needs or kids who are still living in your home, you should consider keeping your current insurance or purchasing coverage if you don't already have a policy. You might want life insurance to help pay your grandchildren's future college expenses. Also, if your spouse would lose a substantial amount of your pension income or other monthly payment upon your death in retirement, life insurance can fill that gap. You should also keep life insurance if you're continuing to work part-time and earning income in retirement.
Some people with considerable assets can use life insurance strategically—for instance, as a way to take care of estate taxes. The proceeds could pay off business debt, fund any buy-sell agreements related to their business or estate, or even fund retirement plans.
As you can imagine, how you use life insurance as a tax-efficient part of your estate plan is complicated. You’ll need the help of an attorney who specializes in estate planning. Keep in mind that unless you have an estate that reaches into the millions of dollars in net worth, estate tax considerations probably don’t apply. If so, you may not need life insurance for this purpose. But to be sure, it’s a good idea to ask a qualified expert.
You can also use life insurance as an instrument to make a charitable contribution to your favorite cause (or causes). Simply designate the charity as a beneficiary on your policy and they will receive the proceeds after your death.
If you've accumulated substantial cash value in a permanent life insurance policy but are still paying premiums on it, consider your options carefully. If you want to stop paying premiums but keep some coverage in retirement, reach out to the life insurance company about how this may be structured. For example, you could convert your policy to one with a reduced amount of paid-up life insurance on which no premiums are due.
If you no longer have a life insurance need and you want the cash value, surrendering your policy is one way to do that. But it can have significant tax consequences. The amount of cash surrender value you receive minus the policy basis (the amount of premiums you paid) represents taxable gain. Talk to the life insurance company to understand what the taxable amount would be in your situation, then consult with a CPA to understand what you'd owe.
Also bear in mind that permanent life insurance policies have a surrender period that can last anywhere from a few to 15 years. During this time, a penalty is assessed if you surrender the policy.
You could need life insurance in retirement if you want to cover your final expenses and estate taxes, have outstanding debt, still earn income, or want to provide a tax-free inheritance to your loved ones. Otherwise, you probably do not need life insurance after retirement.
It depends on how you obtained the coverage. If you had life insurance through work, you typically lose that coverage when you retire. Your group plan may let you switch the policy to your own individual plan, though the cost could be higher than what you were paying as an employee. If you own life insurance outside of work, retiring will not change the coverage or the cost.
Term life is generally the better choice for older Americans buying a new policy. Term life will be less expensive that whole life because term only covers a short period of time. While whole life costs more, retirees who can afford the higher premiums can benefit from the investment potential of permanent insurance's cash value accumulation feature.
A 65-year-old should buy life insurance if they want a death benefit to cover their final expenses, create an inheritance, and pay off remaining debt. While qualifying for life insurance is more challenging as people get older, it is still possible at age 65. If a 65-year-old doesn't have these financial goals, they probably should not buy life insurance.
Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they have retired, their kids have grown up, and they've paid off their mortgage and other debts. However, others prefer to keep life insurance later in life so they can leave a larger inheritance and pay off final expenses.
It may seem counterproductive to give up having life insurance after so long, but the truth may be that you no longer need it in retirement. If you have no income to replace, very little debt, a self-sufficient family, and no pricey concerns around settling your estate, there’s a good chance you can say goodbye to that policy. As far as estate planning goes, you could well need a different type of policy or major changes to your current one anyway.
This is the perfect question for a financial planner or a fee-only insurance consultant. Be careful about simply asking your insurance agent. Because they are often paid by commission, they might have an interest in keeping you on the policy even if you don’t need it, or having you exchange it for another one. By weighing these questions with an objective professional, you can decide if you need life insurance in retirement.
