If you are like most people, you probably won’t need life insurance after you retire. Many life insurance argue that you do of course. That’s OK. In 95% of the cases they are wrong. Here’s why.
Life insurance is a fantastic way to protect people who rely on you in case you die. That’s the reason for it, plain and simple. The only exception to this is if you are subject to estate tax. But since that impacts fewer than 1% of the people in the United States, I’m going to assume you’re good.
I’m going to repeat myself. Life insurance is a fantastic way to protect people who rely on you in case you die. That means you need life insurance if:
- You have people who rely on you.
- You need protection.
When you retire, if all goes as planned, fewer people will depend on you or your income to survive. If you have kids, they’ll probably be independent. Right? So the major reason you bought life insurance in the first place will evaporate. Voila! On to the protection.
Hopefully you’ll have paid off your major debts (hopefully you will no longer have a mortgage) and you’ll have had time to grow your assets. As a result, the income you produce by being alive may not be required. Yes the income is very nice. But it may no longer be necessary once you retire.
Sure you’ll have a pension and that may stop if you die. Of course that could have a negative impact on the family. But if your net worth is greater by the time you retire, your surviving spouse will have the option of using assets to generate more income to replace the income that goes away when you do.
Life insurance is not an investment. It protects your net worth (see above) – it doesn’t build it. The only kind of life insurance that has an investment component is permanent life – whole or universal. And if you compare the returns of this kind of life insurance to almost any other investment alternative, life insurance gets left in the dust. That’s because the costs and fees are extremely high.
Who might need life insurance past retirement?
If others still rely on the income you create after you retire life insurance might be a good idea. Or….if you don’t think you can ever retire, the same holds true. Of course you should do whatever possible to reverse that situation. Sometimes, it’s unavoidable and I understand that.
Life insurance costs good money. When you buy life insurance you forgo other things. That’s why you should only buy it if you need it and it’s the highest and best use of your money. I am the world’s biggest fan of (term) life insurance for people who have dependents. But I strongly recommend you think through the alternatives before you buy insurance to last through your retirement.
Do you see reasons to own life insurance during retirement? What are they?