Term life insurance needed in retirement?

[FIREHAPPY]

I'm retired at 56. Wife is retired at 53. No kids. We have term life insurance policies with a death benefit of $500k (husband death coverage) and $200k (wife death coverage). Yearly cost for the two policies is $1,848.

I'm open to cancelling the insurance but wife is reluctant. Trying to decide if it's still worth the cash outflow since we live off our investments with no side hustle income.

What you say?

 

[corn18]

What are you insuring with the term policy?

One important thing to consider is survivor income. If I die first, my wife loses 45% of my pension. SS survivor benefits may be affected as well, so that needs to be taken into account, especially if the dead spouse has not started taking SS yet (which applies to you).

So, the only reason I can see to continue to carry life insurance would be to cover lost income for the survivor. I am doing this. I have laddered term life out to age 78.

 

[Newventurer]

One way to look at it is that it is LTC insurance for her in the event of your death. If she is not opposed cancel the policy on her if you don’t see the need. Both/And!

 

[Lewis Clark]

I'm retired at 56. Wife is retired at 53. No kids. We have term life insurance policies with a death benefit of $500k (husband death coverage) and $200k (wife death coverage). Yearly cost for the two policies is $1,848.

I'm open to cancelling the insurance but wife is reluctant. Trying to decide if it's still worth the cash outflow since we live off our investments with no side hustle income.

What you say?

Not everybody needs life insurance. Depends on our individual situations.

The primary purpose of term life insurance is to replace the income stream that is lost for the beneficiaries when the policyholder dies.

If you are living entirely off your investments with no side hustles and no pensions, there is no income stream to be replaced when either of you die. So there may not be a need for life insurance for either of you.

Keep in mind some of the potential hidden costs of dying. These include:
* Reduction of eventual Social Security income.
* The tax rate for the survivor will be higher than the tax rate for the couple since there are fewer people in the family and the resulting change in tax filing status.
* When one of you dies, will the survivor have to pay for additional help of any kind, to replace what the other spouse used to do? This may include yardwork, housework, personal care, transportation, and so on.
* When one of you dies, will the survivor need assistance with relocation expenses?
* Will the survivor need assistance with funeral or other final expenses?
* If you keep the policies, will the annual premiums continue to rise as you get older? What percentage of your total budget is represented by the annual premiums?
* When the surviving spouse receives the first death benefit, what will that spouse need to spend the money on? Will the money just add to your investments, or are there specific identified expenses that the death benefit will need to cover?
* Is the peace of mind of the eventual death benefits worth the annual premiums to you?

After you carefully consider these and other similar issues that are not included in my list above, you should have a better idea of whether or not you need the term insurance.

My wife and I have no children, and we both had working careers and decent incomes. We did have term insurance for several years early in our marriage, but we gave it up many years ago once our house was paid for.

 

[bingybear]

What are you insuring with the term policy?

+1
this is the real question. You need to look at your spending plan and if one dies how it affects the other's ability to live comfortably.

 

[harley]

I keep my 30 year $500K term life policy active, even though we've been retired for 12 years and don't really need it from a financial POV. It will expire in 12 more years when I'm 74. I hope they win the bet. I keep it because it's relatively cheap, and makes DW feel more secure.

 

[PatrickA5]

We just cancelled ours (age 60) as the premiums were getting too expensive and we don't need the coverage. I think we were paying $1,400 total for $100K each, so it looks like your premiums are more reasonable. Still, a good chunk of money.

 

[Chuckanut]

What is the insurable need if somebody dies? If you both can manage financially without the other, there is no real need, other than to make the survivor more financially desirable for a new mate.

My guess is that LTC insurance and perhaps disability insurance are more important. Death of a loved, sad as it is, puts an end to the financial costs of a person's life. Special care often adds to the cost.

 

[racy]

...We have term life insurance ... I'm open to cancelling the insurance but wife is reluctant. ...

Seems the question is already settled

 

[HMMY]

One way to look at it is that it is LTC insurance for her in the event of your death. If she is not opposed cancel the policy on her if you don’t see the need. Both/And!

I agree. Cancel the term on her and continue to pay on yourself since she is reluctant to let go of it. Even though we no longer need our term insurance, my husband wants to keep the policy because the premium is $520/year for $1M of coverage.

 

[jazz4cash]

We need term policies for a few more years. I’m trying to convince DW that beneficiary should pay the premium. Haven’t convinced her so far.

 

[OldShooter]

I cancelled my last term insurance policy when I was in my 40s. DW had a good job, kids were out of the nest, net worth was north of $1M. At that point, IMO, the insurance wasn't much more than a lottery ticket.

That said, I believe that there are rare situations that call for insurance. The most obvious of these is when an illiquid investment like a business or a farm ends up in an estate and cash is needed to pay estate taxes.

I have heard arguments for extreme-case scenarios where cash-value insurance can function as a tax shelter. But I have never heard them from someone who wasn't going to receive a commission for selling it. Yup. I'm a cynic.

 

[kaudrey]

Although I don't think we need it, my DH has a policy on himself for me. He's keeping it until he is eligible for his pension in 3 years. At that point, I'll get a survivor benefit if he goes, but he wants me to have that extra $ if something happens before then. It's partly because he is 12 years older than me...it just gives him a reassurance.

 

[joeea]

I'm retired at 56. Wife is retired at 53. No kids. We have term life insurance policies with a death benefit of $500k (husband death coverage) and $200k (wife death coverage). Yearly cost for the two policies is $1,848.

I'm open to cancelling the insurance but wife is reluctant. Trying to decide if it's still worth the cash outflow since we live off our investments with no side hustle income.

What you say?

I don't understand why you need the policies and why your wife is reluctant to cancel them.

If one of you dies, will the survivor have enough to live the lifestyle they have come to expect? If yes, then you don't need life insurance.

I never want my wife to have a financial incentive toward having me take the eternal dirt nap.

 

[joeea]

I keep it because it's relatively cheap, and makes DW feel more secure.

Why would your wife feel insecure without the policy?

Are you cutting things extremely close financially? Is there a pension or something that goes away upon your demise?

 

[pjigar]

I haven't carried term insurance since I was 35 at which our expenses were less than sum of survivor benefits plus returns from next egg. I am the only bread earner in my family.

I have had talk with many people about need of insurance. I start the conversation by defining what is insurance which is replacing the living expenses for life in case bread earner passes away. If you are NOT a bread earner then you don't need any life insurance. Simple.

 

[Lewis Clark]

I haven't carried term insurance since I was 35 at which our expenses were less than sum of survivor benefits plus returns from next egg. I am the only bread earner in my family.

I have had talk with many people about need of insurance. I start the conversation by defining what is insurance which is replacing the living expenses for life in case bread earner passes away. If you are NOT a bread earner then you don't need any life insurance. Simple.

I agree in general, but it may not be true in every situation.

For example, consider a stay-at-home parent who passes away. The working spouse may see a rise in expenses for child care, and for other things the stay-at-home parent had been doing such as house cleaning or yard work. In this type of situation, life insurance on the stay-at-home parent might be advisable to help cover these additional expenses.

 

[NgineER]

We have enough net worth and cash flowing rentals that DW would be fine if I passed, and I if she did. DW is stay at home and I’d like her to be comfortable should I go.
We have term on me $2M expiring in 15 years and $500k on DW with same duration.
I hope hat neither of us benefits from this, but at a cost of $1250/year I think it is worth it.

 

[Koolau]

I'm actually thinking about purchasing the policy which is in force for me but owned by the small business I'm selling. The policy was to cover a buy/sell agreement. It was "unrated" when taken out. Now that I have some "issues" it might be a bargain to purchase it from the business (I'd get half the cost BACK in stock dividends eventually, heh, heh.) DW will lose her SS when I die and she will lose 3/4 of my pension. SO... An unrated policy on a "high-risk" husband seems like the way to go. That would also cover her for a long term care situation. We can afford the policy though, full disclosure, she wouldn't really need it if all goes to plan. This is part of my belt/suspenders/elastic belt approach to FIRE so YMMV.

 

[Koolau]

Oh, forgot to mention that the BEST reason to keep your term life is because your DW feels uncomfortable without it. Unless it would really cramp your FIRE budget to maintain it in force, I would continue it just to keep peace and tranquility. Naturally, YMMV.

 

[dandan14]

What are you insuring with the term policy?

One important thing to consider is survivor income. If I die first, my wife loses 45% of my pension. SS survivor benefits may be affected as well, so that needs to be taken into account, especially if the dead spouse has not started taking SS yet (which applies to you).

So, the only reason I can see to continue to carry life insurance would be to cover lost income for the survivor. I am doing this. I have laddered term life out to age 78.

This is key. If one spouse dying reduces the income (whether it be a pension or Social Security), it can be important to insure that income.
For example, in the US, let's say spouse 1 gets $2500/month in SS. Spouse 2 gets $1500. Total income is $4000.
If either spouse dies, the higher payment is the one that keeps coming. So (assuming they need this income for living expenses), there is suddenly a $1500 monthly gap in income. Than can be insured.
If you don't need that income because you have plenty of other retirement assets, then it may not be worth doing.

 

[brett]

I dropped mine when I FIRED. DW did not qualify for life insurance.

We reviewed our situation and decided that the premium expenditure was no longer justified. We reviewed the financial situation and tax situation should I predecease DW. Keeping the policy no longer made sense. I loaded up with term insurance when my children were young. Then we gradually reduced it as they finished university and we on their own.

 

[FIREHAPPY]

Thanks for all the great advice. Wife is newly retired so i think she's still adjusting to the change which i can understand. I take the lead on financial planning and paying the bills so I see the cash outlay for the policies each month. We're living under budget so it's not a really an issue. I guess it's like all insurance and feels like a waste of $$ until you actually need it. I'll plan to keep on paying the premiums for a while and will reassess with her in the next year or so.

 

[Scuba]

We don’t have any life insurance. When I was working, my employer provided it but DH’s didn’t. I made a lot more money so we never worried about it. Now that we’re ER’d, we have plenty of assets and my pension has a 100% survivor option which I’ll likely elect. We have no kids. Can’t see any reason why we need it.

 

[Montecfo]

There are reasons to keep term life. Here are a couple of them:

1. As a longterm care policy. We never know of we will need LTC. But we all die. Term life is cheaper and more certain than LTC.
2. You might not be insurable at a later time, if you have experienced a change in fortune.
3. Financially, it may make sense as an "investment" of you are able to keep it in place until death.

Having said that, I have cancelled my more expensive policies. Keeping the cheaper ones for now. FI but not yet RE.