(3 Minute Read)
A lot of things change after you retire. It takes a lot of time to adjust to your extra free time, no longer needing to wake up at a certain time to be at the office. And one of those things that changes is your need for different insurance.
A Strict Budget
Any financial advisor will tell you that after you’re retired, one of the first things you do is cut expenses. Things you no longer need simply shouldn’t fit into your budget anymore. You have a set amount of money, and that money has to last you for a long time. Especially as more and more people are at risk of outliving their retirement savings, it’s more important than ever to create a strong budget that can help you live out your retirement comfortably.
But one of the things that people waver on is life insurance. Do you need it in retirement, or do the premiums add up to an expense that isn’t necessary? Wouldn’t that money be better put elsewhere?
Life Insurance as an Investment
Many seniors and retirees find that life insurance isn’t a great investment for retirement. There’s little to no payout for the insured. If the fees aren’t structured to be efficient, then premiums can quickly become a burden.
Of course, there are some perks to life insurance, but a lot of those are dependent on your financial situation and the type of life insurance you have. For those who have earned enough to max out their contribution to a 401(k), a life insurance policy can act as a sound investment. But these are specific circumstances. Your financial advisor can answer questions about your specific financial situation, and help you decide if you should keep or get rid of your policy.
Opting Out of a Policy
If a life insurance policy ends up not being a sound investment opportunity for you to continue, you’ve got options. The first option is to simply let them lapse. This option rids of you the premium payment, but unfortunately, you don’t see any return on your investment. Whole and permanent life policies may have cash value. If you surrender the policy for the cash value, you can collect it—sometimes tax-free.
Another option that many don’t consider is a life settlement. A life settlement is the sale of a person’s life insurance policy to a third-party investor. In a life settlement, the policy’s owner transfers the ownership of that policy in exchange for an immediate cash payment from the buyer. Candidates for life settlements are typically 70 or older, with a life insurance policy that has a “face value” (death benefit) of more than $100,000.
Ultimately, you may not need life insurance as a retiree. It can provide certain benefits in certain situations, but in some cases, the additional liquidity provided by getting rid of a life insurance policy via a life settlement outweighs the benefit of an underperforming policy.
If you have a life insurance policy you no longer want or need, use our qualification calculator to see if you can sell it for a lump sum of cash.