Why You Might Need Life Insurance at Retirement
Roger Wohlner

Traditionally, conventional wisdom was that life insurance was generally not needed once you retired. This may or may not still hold true and will vary based upon your personal situation. Here are a few thoughts.

As you near retirement, life insurance can be…

  • An excellent estate-planning tool. If you have a large estate, life insurance can be used to help your heirs pay any estate taxes that might be due. At the federal level, the current exemption is $5 million, but there may also be estate taxes at the state level to consider. As always, it is best to discuss this with your financial, tax, and estate planning advisors to see what applies to your situation.
  • A bridge to “final” retirement. For many of us, this is not retirement as our parents knew it. By this I mean that many folks continue to work into what were traditionally retirement years, either because they want to stay active and connected or out of financial need (or sometimes both). Perhaps working a few more years will allow you to amass the nest egg that you need to be able to retire cold turkey. Should you die prior to being able to accumulate these extra savings, life insurance can fill this financial gap for your heirs.
  • A form of assistance for a child with special needs. If you have a child or grandchild with special needs, life insurance can be a means to provide funds for his or her care after you are gone.
  • A means to honor charitable intentions. You can leave a charitable bequest by making the organization the beneficiary of your life insurance policy.
  • A tool to help pass on a business. You might still have an ownership interest in a business entity continuing into retirement. This ownership interest will be a part of your estate and could be subject to estate taxes. Life insurance can be used to pay those taxes, just like it can be used to pay personal estate taxes. Further, the life insurance proceeds can be used to buy out your heirs and to allow the business to go to the remaining owners. Life insurance is also a common tool in a buy-sell arrangement. Again, it is best to consult with qualified advisors in establishing this type of arrangement.

As with any type of insurance, whether or not to own life insurance during retirement will be dependent upon having a risk to insure against. It can be easy to be sucked in by life insurance agents portraying it as an investment or a tax shelter. While everyone’s situation is different, in my opinion, life insurance should be viewed as a death benefit. This should drive your decision, whether this involves keeping a policy in force or purchasing a new policy.

Roger Wohlner, CFP® is a fee-only financial advisor at Asset Strategy Consultants. Roger provides advice to individual clients, retirement plan sponsors and participants, foundations, and endowments.


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