Does your need for life insurance end when you stop working? That’s a question I get often, and so it made sense to address it in our blog post today.
It’s common to think of life insurance as a need that replaces working income. It’s certainly true that the primary spouse and even in non-working spouse have life insurance needs to replace income and/or additional expenses, but retirees have income sources that end as well. The primary being Social Security and pension.
It’s unavoidable to lose one Social Security check at the premature passing of a spouse. Whether or not the loss of this income is offset by the reduced expenses of the surviving spouse must be stress tested in order to determine whether there is a continued need for a death benefit.
Depending on how an individual elects a pension, it may be reduced at the passing of the spouse. A life only pension will cease income payments to the survivor. Other options such as 75% or 50% joint and survivor pension options will also create a reduction in income for the surviving spouse. All these income reductions need to be tested against the survivors new expenses to see if an additional death benefit need remains.
Sometimes by the time a retiree realizes an additional need for life insurance, the cost can be prohibitive… so what can be done then?
Some retirees can choose to incorporate their housing wealth as a safety net for a surviving spouse in a situation where there is a loss of income. Activating a Home Equity Conversion Mortgage (HECM) line of credit as early as possible in retirement can go a long way toward ensuring there is enough later on if needed.
Have you stress tested the need for life insurance during retirement?