Life insurance provides protection during your working life, so is it still needed in retirement.

One of the fundamental purposes of life insurance is that it provides protection against loss of income during your working life, it may therefore seem logical to forfeit your policy when you retire. You may even think about turning it in for its cash value (for those of you still invested in an endowment policy).

However, before you decide to get rid of your life insurance policy upon retirement, you may wish to think about it as more than just a way to replace your income. Just because you’ve hung up your employment boots, life can still throw some unexpected curveballs at your retirement goals, so it’s worth being prepared.

What can life insurance do for my retirement?

There are many reasons why somebody who’s retired might choose to maintain a life insurance policy:

• Life is still full of surprises after you retire. That’s good news if you’re the adventurous type but it’s worth having a Plan B in case you pass away prematurely, or your physical health doesn’t hold up. Keep in mind that you’ll no longer be earning a regular employment income during retirement so you’ll need to manage your retirement nest egg carefully – large financial setbacks like an injury or illness could interrupt your hard-earned plans to travel or enjoy a rewarding lifestyle after decades of working.
• Making the choice to continue holding life insurance when you retire can also depend on your financial situation. For instance, if you expect to receive a pension or other retirement income that is solely yours, life insurance can maintain that income for your spouse if you die first. In that same vein, life insurance may be needed for a surviving spouse to supplement social security payments from the government. This is even more crucial if you pass away prior to your spouse reaching the age of being able to receive social security payments.
• It’s also worth thinking about any dependants that still rely on you. The recent pandemic saw an increase in “Boomerang Kids” (adults forced to move back in with their parents after losing their job), which could mean that financially independent children aren’t as independent as they seemed. If you’d like to be able to help your kids or grandkids (education funding) during uncertain times, then life insurance could provide a good safety net for them if you were to suddenly pass away later in life.
• There’s a definite trend towards Australians choosing to continue working after they reach retirement age. Moving into a part-time job allows you to generate some extra income, for starters. Plus, work gives you a way to stay active and feel like you’re still engaged with your community – providing a sense of purpose. If you make that choice, you need to consider the impact that loss of income could have on your family. You’re using the income to create a certain standard of living in your golden years.

Summary

When you retire, you may no longer earn an income through your job, but it's not the end of your need for a life insurance policy. Whether you decide to keep your life insurance after you retire or give it up depends on the state of your financial security, and some of the retirement objectives you may have beyond yourself.

Thinking about these factors before you retire can help you decide the best course for your life insurance needs when you are no longer going to work every day.

If you have any questions, please contact your Shadforth adviser.

^{Source: TAL Insurance Business Partnership article November 2023}