Do You Still Need Life Insurance in Retirement?
Are you still paying premiums for life insurance?
If so, are you sure you still need to?
That might seem like a funny question if you’ve carried life insurance for a long time. However, you may very well be paying for insurance you don’t need any more so it’s a question worth evaluating.
One of the components of our Relaxing Retirement Coaching Program™ is evaluating and then helping our members manage risk.
You can’t avoid all risks completely. Nor can you insure yourself against any potential loss because you’ll go broke and become “insurance poor.”
The key to the game is objectively evaluating and then “managing” risk.
When you were younger and raising a family, the financial risk your family faced if you were no longer here was much more real for you.
If your paycheck wasn’t there for your family, what would they do?
However, now that your family is grown and out of the house, do you still need to pay those premiums and keep that life insurance policy that you’ve had for years?
That’s a very important question that is more emotional than rational for most people.
What I’ve always found to be so interesting is trying to illustrate to someone, who has had life insurance for years, that they no longer need to keep it.
It’s hard to let it go after paying for it for so long. Those life insurance agents did a great job!
How to Evaluate If You Still Need Your Life Insurance Policy
Keeping an existing life insurance policy or not is really just a math question which you can evaluate by answering three “risk management” questions:
- “What’s the financial loss if I don’t have this insurance?”
- “What’s the probability that I’ll suffer this loss during a specified period of time?”
- “Am I willing to risk absorbing this entire loss myself, or should I pass on some or all of the risk to an insurance company by paying a premium?”
In this case, stop and think about it for a moment. What is life insurance?
It’s money. Money that is delivered to your heirs upon your death.
So, the question is, does your spouse and family still need that additional amount of money when you die (over and above everything you’ve saved and accumulated) to support and continue their lifestyle?
Let’s assume for a minute that you’ve taken the steps in The Relaxing Retirement Formula™, and you’ve gone through the all-important process of putting a price tag on your ideal lifestyle.
You’ve prioritized what you want to have happen while you’re living and when you pass away.
You’ve tallied up all of your income sources like social security, pensions, and rental real estate (if you have any). And, you have a crystal-clear handle on where all of your money is and the total value of your Retirement Bucket™.
You’ve run your Retirement Resource Forecasters™ into the future and the results are that you have more than enough money built up to support you and your spouse for as long as you live.
In other words, you no longer need to work to support yourself. You have enough built up in your Retirement Bucket™ and you can afford to do what you want, when you want, where you want, and with whom you want because you’ve eliminated your dependence on a paycheck from work!
Answering Question #1
Going back to Question #1 above then, what is the financial loss if you don’t have this insurance?
Take a moment to really think about this.
By definition, if you have enough money built up to support both of you while you’re both living, shouldn’t there also be enough money to support only one of you if something happens to you?
If the answer is yes then you don’t need to pay for life insurance anymore!
Your spouse and family don’t need more “money” when you pass away (i.e. life insurance) because you already have enough.
It might be nice to have more money, but by the priorities you’ve laid out in your Retirement Blueprint™, there is no need for more money to satisfy those priorities.
There are (2) exceptions to this where you may still want to carry life insurance:
- If you have a monthly pension which ends when you pass away because you have chosen the Single Life pension option. Or,
- If you’re purchasing the life insurance inside of an irrevocable life insurance trust to help provide liquidity and pay your inevitable estate taxes (or income taxes due if you have large IRA holdings).
The key point in all of this is to “know your numbers” cold.
If you’ve done your homework and followed a process like The Relaxing Retirement Formula™, and you know exactly where you stand financially as we discussed above, then it becomes a rational decision based on fact, not emotion.
Take the time to know your numbers, and objectively evaluate them so you don’t pay for something you don’t need anymore.
It’s highly unlikely that an insurance agent is going to tell you this because they continue to receive commissions as long as you keep the insurance, so you have to do a little homework to keep yourself honest.
The bottom line is that if the risk of “financial” loss is no longer there, you don’t need to pay life insurance premiums anymore. You are far better off spending those premium dollars to cover a more pressing financial risk like long term care or personal liability from a lawsuit.
Or, if you’ve already taken care of that, take another vacation every year, or go out to dinner one more time every month to a restaurant you wouldn’t have gone to otherwise!