How Life Insurance Fits into a Retirement Plan

While some may view life insurance as a simple way to replace income or cover final expenses, there are many benefits to considering it as an important part of a broader retirement plan.


Thinking by the computer

Congratulations, you’ve reached your golden years! Or maybe they’re just on the horizon. Either way, the end of the working era marks a critical time to review finances and understand how to make sure your money is working best for you.

That process includes taking a look at your investments, home equity and other assets to determine whether they’ll be able to support you for what could be a decades-long retirement. Near-retirees often overlook the role that life insurance can play when it comes to retirement planning.

Retirement is a huge life event that could potentially change your life insurance needs. Answer these questions to decide whether you have appropriate coverage for this next stage of your life.

Is your life insurance tied to your employer?

More than half of American consumers have life insurance through work. Once you stop working, you may no longer have access to that employer benefit. Not every retiree needs life insurance, but if you want or need a policy, it’s worth considering your options.

Some plans allow you to convert your group coverage into an individual plan, though you’d no longer have access to subsidized premiums. If you’re interested in that option, it’s important to get in touch with the insurance provider within 30 days of leaving your job. In addition, this might be a good opportunity to shop around for another life insurance policy that’s tailored to meet your current and future life insurance needs.

Have your debt levels, dependents or other priorities changed?

Many consumers purchase life insurance to offer financial protection to young family members, often selecting a policy that can help survivors pay off a mortgage or cover future college tuition bills. Decades later, the mortgage may be paid off (or close to it), and the kids long finished with their degrees.

If you’ve also managed to build up your assets during that period, with 401(k) contributions and other savings, or if you’ve received an inheritance, you may no longer believe you need to carry the insurance you originally purchased. If you have a term life policy that was purchased for a specific time period (10, 20 or 30 years), this might be a time to review both the coverage amount and time remaining on the policy. On the other hand, if you’ve taken on additional debt or are concerned that surviving loved ones might struggle financially after your death, it may make sense to hold onto an existing policy. Also, if you have purchased a policy with accumulating cash value, you may be pleasantly surprised by the many ways that policy can be an asset to your retirement.

In any case, this is a great time to review what you have and how you may be able to use the existing coverage and policy features for your retirement.

How will the premiums fit into your retirement budget?

One of the adjustments many new retirees face is learning to live on a fixed income, making sure they’re not overspending in the early years but also doing their best to enjoy the nest egg that they’ve spent a lifetime building up. If you and your financial professional have decided that life insurance makes sense for you, it’s important to make sure to factor your premium payments into your retirement budget.

We are also seeing many who retire from a full-time job or career continue with some form of income-producing work or activity. Almost half of Americans aged 60-75 say they plan to work part time after they retire from full-time jobs, according to a survey by AAG. This may also factor into your budget considerations.

Thinking of your life insurance premiums as a need rather than a want, and budgeting accordingly can ensure that your policy remains in effect for when you or your family need it. Some policies offer the option to use the cash value of the policy to pay the premiums, meaning that you no longer have to make payments out of pocket.

Are you worried you’ll outlive your money?

Longer life spans and earlier retirements can extend the retirement period to three decades or more. With health care costs continuing to rise, it’s no wonder that fear of running out of money in retirement is among Americans’ top financial fears. Despite continued strong investment markets, volatility concerns are common, especially in times like retirement when you are likely drawing on invested assets. The right life insurance policy can create an additional option for tax-deferred accumulation that can be accessed as an additional emergency fund in retirement or an additional income stream.

A permanent life policy can build cash value that you can tap into or borrow against if you need money. And if acquired early on, it can also be a tax-deferred way to save for retirement. That might make sense for individuals who’ve already maxed out traditional retirement plans. Life insurance policies offer some flexibility that 401(k)s and IRAs don’t, including no required minimum distributions, and can often have minimum guarantees.

In addition, some insurers now offer life insurance policies that have an additional feature to help pay for long-term care and other medical expenses, one of the largest buckets of expense that retirees face.

Is leaving a legacy important to you?

Sharing your time and creating memories with your family is one way to leave them with a legacy after you’re gone, but some people also want to provide a financial legacy for loved ones or a charity that they care about. Life insurance can help you meet that goal, providing funds that can go directly to your beneficiary(ies), typically tax-free and without probate.

Having life insurance in place to take care of your legacy goals may allow you more freedom to spend down your assets while you’re alive.

While the primary purpose of life insurance may be to provide security for your loved ones, it’s important to understand the role it can also play when it comes to retirement planning. You may never use your life insurance during your golden years, but knowing that it’s there may give you some additional peace of mind, especially during these uncertain times.

Life Insurance is issued by The Prudential Insurance Company of America, and its affiliates Newark, NJ. All are Prudential Financial companies and each is solely responsible for its own financial condition and contractual obligations.
​This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. If you would like information about your particular investment needs, please contact a financial professional.

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