If you’re like many Americans, you first bought life insurance to protect your new home or young family. And like many Americans, you might find that your needs change as you near retirement. Perhaps you're no longer among those who need life insurance, or maybe you have new reasons for buying a policy.
Whether you decide to double down or drop coverage, your retirement years are often a good time to re-examine your life insurance. Here are some of the options:
Keeping your life insurance
As you enter your 60s, you might find you need your life insurance as much as ever. Maybe:
You’re still working. If you and your spouse still depend on income you bring in, it’s wise to protect that income with life insurance.
You have a high net worth. Financial advisors often recommend permanent life insurance for people with estates in excess of $5.4 million to minimize estate taxes.
Others depend on you financially. If you still support children or other family members, consider keeping your term life policy or converting to a permanent policy.
You intend to live off your cash value. Some people fund their retirement using withdrawals from the cash value of their permanent life insurance.
Buying new life insurance
If you didn’t purchase life insurance in your 20s, 30s or 40s and are hoping to get a policy now, you might find yourself in a tough position. Life insurance quotes for buyers increase as you age, and any health problems you’ve picked up along the way will make it more difficult to find an affordable policy. For example, while a 35-year-old woman could buy $500,000 worth of whole life insurance for around $300 per month, it would cost a 65-year-old woman more than $1,000 per month for the same coverage, according to Trusted Choice, a network of independent agents.
At that price, you might be better off self-insuring. In other words, you can take the money that you would have paid for premiums and invest it instead.
You also might be able to sign up for a shorter term life insurance policy if you’re generally in good health. A 65-year-old can qualify for $500,000 of life insurance with a 10-year term for between $125 and $200 per month, according to a NerdWallet survey of insurance company and quote aggregator sites.
If you’re not in good health, you may have to consider guaranteed issue life insurance, which generally offers substantially lower benefits. A 75-year-old woman would pay between $175 and $300 per month for $20,000 of coverage. However, if the policyholder dies within two years of buying the policy, the insurance company generally will not pay the full benefit and may refund only the premiums paid.
Extending or converting your policy
If you bought a whole life insurance policy years ago, then you’re ahead of the game. But if you currently have a term policy, you have a few options for extending your coverage. You can:
Renew your term policy. Most term life insurance plans allow you to renew your policy, regardless of your health, at the end of your term. Keep in mind that your premium will probably increase, and some companies don’t allow renewals after a certain age.
Convert your term policy to whole life insurance. Many term life insurance policies offer the ability to convert to a whole life insurance policy prior to the end of your term. Though you shouldn’t have to undergo another life insurance medical exam, you might have to convert the policy well before your term expires.
Dropping your life insurance
Others reach retirement relatively free of financial worries. If you no longer work, you’ve paid off all your major debts and your children — if you have them — are financially independent, you can probably do without a life insurance policy.
Have term insurance? You could keep your policy until it expires, or you could call your agent or insurer and ask to cancel your coverage. You may also simply stop paying your premiums.
Getting out of permanent life insurance is a little trickier, but if you’ve held the policy for decades, you should have built up significant cash value. Once you let your agent or your company know that you’d like to discontinue the policy, you should receive a check for the amount you’ve accumulated, minus any surrender fees.
The bottom line
It’s very possible you’ll no longer need life insurance once you’ve retired. If you’re living on a fixed income, cutting the expense could give your budget some much-needed breathing room. But discuss your needs with your insurance agent or a financial advisor before making any major moves. Unfortunately, if you drop coverage and decide later that you’d like to sign up again, it’s often prohibitively expensive to get a new policy.