Having Life Insurance for Retirement – Do You Need a Policy?


Many people think of life insurance as something that will cover funeral costs and perhaps leave some money to cover the expenses and lifestyles of their spouses and children after they die. But, life insurance for retirement can also offer you a lot of benefits when planning for this next stage in life.

The experts at Financial & Tax Architects can help you determine the best plan and policies for your unique situation. In general, here are a few reasons why you may want to consider making a life insurance policy part of your retirement planning.

Take care of your debts

If you have significant debt, like a mortgage or other large, unpaid balances, you may want to think about obtaining enough credit life insurance to pay off your mortgage and any other significant debt at the time of your death.

Your spouse will probably have enough issues to cope with, without having to deal with the additional financial stress of wondering whether they can stay in your shared home or how to pay outstanding balances.

Replace lost income

Many people have found that part-time work after retirement was beneficial. Whether it was the mental challenge of continuing to work or the necessity of income to maintain a retirement lifestyle, your spouse will probably appreciate continuing to receive that income after you’ve gone. Your life insurance could replace this income.

You can do this by buying a term or whole life insurance policy, leaving a lump sum that can be invested for income after your death.

On the other hand, you can create a stream of income for your survivors by purchasing an annuity that will pay a stream of income to your surviving spouse. If you enter retirement with dependents, who rely on your income, you can use the same kind of life insurance or annuity to help provide income after your death.

Create a safety net

Life insurance can even offer extra security while you’re still living. For example, cash-value (also called whole) life insurance policies allow you to borrow a portion of the cash value. This lets you have access to these funds on a tax-free basis.

You should know, however, that any unpaid balance or interest will be deducted from the value of the policy at the time of your death.

Similarly, some hybrid life insurance policies can protect you against catastrophic medical expenses through the use of a long-term care rider on the policy. These riders, like all riders, carry an extra premium cost but are generally more easily available and less costly than a stand-alone long-term care policy.

Be smart with business planning

Having life insurance for retirement can also help your business. A so-called “key man” policy can protect the business from costs arising out of the company losing you (e.g., having to find and hire a replacement for you).

Similarly, a life insurance policy can provide funding to keep the business intact by paying for estate taxes.

Look after your heirs

Indeed, insurance is good for succession planning in general. Life insurance proceeds are generally not taxable as income, nor are they usually part of your estate.

Because it doesn’t go through probate, a policy can enable you to leave your heirs a significant legacy that they can quickly access. And, they won’t have to pay taxes on the funds either.

Who doesn’t need life insurance?

You may have read this far and thought, None of this applies to me. Should I still get life insurance? In fact, there are a number of situations where you wouldn’t need or want to purchase a life insurance policy as part of your retirement planning. For example, you may:

  • Have only grown children who don’t need your assistance, or no children at all.
  • Have sufficient savings to cover long-term healthcare and any unexpected medical or other needs.
  • Not need to rely on the availability of a potential loan against a cash value policy.
  • Not need the life insurance you used to get from work – especially at a (likely) higher cost.
  • Have Social Security, a pension and perhaps an annuity that all include arrangements for your survivors.

Get help with life insurance for retirement

Life insurance may help you solve a lot of potential problems in retirement. If you’re unsure about whether life insurance could help your retirement, consult with the financial professionals at Financial & Tax Architects. We can help you understand your immediate and long-term insurance needs.

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The opinions expressed by featured authors are their own and may not accurately reflect those of Financial & Tax Architects, Inc. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

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