Do Retirees Need Life Insurance?

The quick answer? It depends.

The purpose of putting a life insurance policy into place is to protect your loved ones financially in the event of your passing. Let's imagine you're the sole breadwinner in a house of five that includes three children and a non-working spouse. If you normally earn $100,00 a year, but you were to pass away, your family wouldn't have an income coming in. And so having life insurance is essential in that scenario.

But what if your situation is completely different? What if you've just retired, and you're no longer earning an income? What if your three children are grown with jobs of their own, and your spouse is now collecting Social Security? Do you still need life insurance?

In this scenario, maybe not. But that doesn't mean life insurance is never a necessity during retirement.

The pros and cons of maintaining your life insurance coverage

Having life insurance during retirement provides your loved ones with extra protection. That's the upside. The downside, however, is having to continue to pay your life insurance premiums at a time when money may be tighter.

As such, it's important to assess your family's needs and decide whether life insurance is worth it during retirement. You might ask yourself these questions to arrive at that decision:

• Are my children financially independent? Perhaps in retirement, you have a child who's just entering college or hasn't gotten on their feet yet. If that's the case, it could pay to maintain a life insurance policy, whereas if your kids all support themselves financially, it may not be worth it.
• Do I have any debts I might leave my spouse with? If your home is paid off in time for retirement and you don't have other debts, you may not need life insurance. But let's say you still owe $40,000 on your mortgage. You may want to maintain life insurance in that case. While your spouse will still be entitled to Social Security, your monthly benefit goes away once you pass. And it may be that you've been relying on two sets of benefits to pay for your home.
• Do I have a large nest egg? If you've saved well for retirement in an IRA or 401(k) plan, then you may not need life insurance. Say you have $1.5 million in savings. That sum could do a great job of helping your surviving spouse stay afloat. On the other hand, if your savings are minimal, life insurance could be useful.

What's the right call?

In some cases, it makes sense for retirees to have life insurance -- even if they're not earning money. It's also worth noting that some retirees earn an income, even if not a full-time one. And that's income a couple might rely on to make ends meet.

Still, in many cases, life insurance may not be necessary in retirement. To figure out what's right for you, run through the questions above and assess your personal situation. Also, see how much your life insurance premiums eat into your retirement income. If they're affordable, it could be worth maintaining a policy, even if it's just extra protection for your loved ones.