It’s interesting to note that some people have a hard time letting go of their life insurance policy. They think, “I’ve paid on this life insurance policy since I was 25. I can’t just cancel it. I didn’t get anything out of it.” Those same people rarely say that about other types of insurance. For example: Let’s say you have insurance on a motorcycle you own, and you decide to sell the bike. Would you continue paying the insurance premiums for that bike? No, of-course not, and you’d probably be glad you never needed to make a claim and relieved not to have to pay the premiums anymore.
Financially, the “I haven’t gotten anything out of it yet” scenario isn’t a good reason to continue paying on a life insurance policy; however, there are a few scenarios in which keeping an insurance policy after retirement may make sense.
If your family relies on a spouse’s monthly pension payment, and that spouse chooses the higher payments of a plan that is based solely on his/her life expectancy, rather than the lower payments of a “joint and survivor” benefit option or if only a low percentage of the pension is paid to the surviving spouse, you may want to consider keeping your life insurance policy to avoid a financial hardship for the surviving spouse or family members.
Many couples are choosing to have children later in life. If you retire and still have children who rely on you for their financial security, a life insurance policy can help.
For some parents, it’s important to leave their children (even financially-secure, grown children) an inheritance. A life insurance policy can provide your children extra financial security for years to come.
Naming your favorite non-profit organization as your primary beneficiary is a great way to pay a little each month and leave a substantial amount to a charitable cause.
If you’re leaving behind a large, illiquid estate, the taxes your beneficiaries will need to pay can be significant. A life insurance policy can help maintain your estate without affecting their personal assets.
If you are a business owner or partner of a company with illiquid assets, you may want to consider keeping your life insurance policy. Illiquid assets are subject to both taxation and market flux. A life insurance policy can ensure that your business won’t have to liquidate corporate assets.
If you decide that you still need a life insurance policy after retirement, you probably don’t need as much or as long of a term, which is good since your rates will increase as you age. Rather than renewing a term (or temporary) policy, it may be wise to take out a permanent policy (such as a universal or whole life plan). Although permanent policies are generally more expensive, they usually provide higher benefits and you’re guaranteed to “get something out of them.”