Situations When A Retiree Should Own Life Insurance

Most personal finance bloggers or gurus would say that Retirees or near retirees no longer need insurance, however, like most personal finance advice when you start applying real life situations the hard and fast rule starts to crumble.  There are situations when retirees or near retirees should have life insurance and just like my view on purchasing life insurance on a child one just needs to think about it logically to come to the same conclusion.

Protecting A Survivor’s Income

Life insurance is often used to replace a lost source of income.  The easy situations is when a retired couple has one spouse receiving income from pension which does not continue or is substantially reduced at the time of said spouse’s death.  You would be surprised how often I see a couple who has chosen the single life option but has absolutely no way to replace that income if the spouse predeceases.

If one can agree that we should protect an income stream shouldn’t we then try to replace the cost of living adjusted Social Security? If you have a couple living nearly check to check what would happen if one of those checks just stopped suddenly? At a time when things look the worst.

Solving a Liquidity Need

Maybe we aren’t protecting an income stream but rather protecting against a fire sale.  When one spouse dies there is often an understandable need to flee to safety.  Providing a lump sum, in cash, for a widow or widower may provide the need for safety without selling assets.

Just like helping a widow or widower with a liquidity, life insurance may provide liquidity to help out heirs conclude your estate. Regardless of whether you are going to be hit with a State Estate Tax or the Federal Estate Tax the collecting agency has no interest in your real estate, property, jewelry, etc.  The agency wants pure cash usually within 9 months.

I am sure there are other situations but those 4 are probably the easiest examples of when a retiree has a permanent or near-permanent problem that can be solved with life insurance.

5 Responses to Situations When A Retiree Should Own Life Insurance

    • I think the problem is that people don’t think about it…they just assume when they aren’t working their coverage is not needed.

  1. If the couple still has a mortgage (heaven forfend!), it would be good to carry enough insurance to pay it off. And as for carrying enough to cover the taxes on whatever the kids will inherit, there’s the issue of whether they have to take money out of an IRA to pay to file your corpse away someplace…or to access those funds for some purpose such as paying off tuition loans, putting their own kids through college, or buying that yacht they always wanted.

    • The problem with taking it out of your IRA is if you do it at the estate level then you could mess up the stretch on the beneficiary’s life. In addition it is income taxable so not only are you getting hit with the estate tax you are now getting hit with Income in respect of a decedent tax (IRD).

  2. If you have a fair amount of savings your kids will inherit, an insurance policy can protect them from having to pay the obscene tax on IRA cash-outs (which are required…they have to pull it down just the same as you do once you reach 71 1/2) and the cost of burying or cremating you.

    That’s if you can afford an insurance policy.

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