Financial Answer Center
SUGGESTION: For more in-depth information on life insurance, see the section Buying Insurance.
If you've properly planned for retirement, is it reasonable to assume that you don't need life insurance?
The answer is, it depends. If you're single and you have no one that depends on you financially, you typically have no need for life insurance. Whatever assets you own when you die will either go to your estate, your heirs or a charitable organization. If, however, you don't have enough money for a decent burial, then you might want to have a small policy. On the other hand, if you have a sizable estate and you are concerned about estate taxes, asset preservation, and distribution after death, you might want to consider life insurance to help pay for estate taxes and avoid liquidation of either part or all of your assets. But, before going out and purchasing a big policy, consult with an estate planning professional as to what estate planning tools and techniques are best for you.
If you're married, your spouse may need income in the event you predecease him or her. If you have a pension, you can elect a joint and survivor annuity benefit. Most companies will allow you a choice of annuity payout options to help you plan for your spouse's income needs. See the section Annuity Form of Payout.
If you've planned well, have a decent pension and/or substantial savings, then life insurance may not be necessary, unless you have concern over estate taxes as described above. Estate taxes become a concern for a married couple with a combined estate over the applicable exclusion amount. See the Learning Center - Planning your Estate for more information.
IMPORTANT NOTE: If you're in your mid-fifties or older and married, you may get a call from an insurance agent who wants to introduce you to a concept called pension maximization.
Pension maximization works as follows: When you retire, your spouse would waive his or her rights to the death benefit from your pension and you would then elect a single life annuity as your pension distribution option. With the extra money from the higher monthly benefit, you purchase an insurance policy to replace the income your spouse would have received at your death. If your spouse dies before you do, you have the higher income for life and you may be able to recapture some of the cash value in the policy.
While the concept sounds great, there are several risks. The primary risks are that the insurance won't be enough or it will cost you substantially more than you'll get from the higher single life annuity payout. Even if you start making premium payments well before you retire, the actual cost may exceed the benefits. Depending on how far off retirement is, the assumptions used by the life insurance company may be very different when it comes time to draw an income from the death proceeds.