Retire Well

Here's what to do if your life insurance is about to expire

Key Points
  • Retirees face a dilemma as term life insurance policies expire or as they leave work.
  • Analyze your lifestyle to decide how much insurance you still need.
  • Switching to permanent life insurance is more costly but can be a tax shelter.
Life insurance in retirement
Life insurance in retirement

It's a fact few of us like to think about, but death is a part of life.

Failing to prepare for this could leave loved ones struggling to deal with their loss as well as how to pay for it.

Which is where life insurance comes in. These policies come in many forms and typically provide a lump-sum payment upon your death to beneficiaries whom you've designated.

It's an important financial tool many are choosing to go without. A recent survey found 37 percent of adults did not have any form of life insurance, with the majority citing the cost as the biggest reason why they chose skip coverage.

Even those who did pay for life insurance when they were younger may be facing a difficult decision now that they are approaching retirement.

"Many people have life insurance through their jobs, but once they leave, they have no more insurance," said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

Older Americans who chose term life insurance, which provides a set amount of coverage for a specific length of time, may be nearing the end of those policies, which generally max out at 30 years.

Decide how much you need

Now may be the time to re-evaluate.

"Analyze your lifestyle and what needs to be taken care of if you were to pass away," said Quincy Branch, an independent insurance agent and president of Branch Benefits Consultants in Las Vegas. As a retiree, you may not need as much coverage, he said.

Branch advises clients to ask themselves a few basic questions such as: 'Are the kids out of the house?' Or, 'Is my home paid off?'

Then we look at what type of assets and resources they have available to them, he said.

Continue with term

Once you've looked at your personal situation, there are a few options for continuing your life insurance coverage.

If you're still working or have a lot of debt, a new term life policy may make the most sense, said Johnson. Just be prepared for premiums to rise now that you're older.

Also, make sure the policy covers at least one year's worth of income. At the bare minimum, it should also cover end-of-life costs such as burial or cremation.

Switch to permanent insurance

If you wish use life insurance as a way to pass on wealth to future generations, you may want to consider getting permanent or whole life insurance.

You may not have to take out an entire new policy to do this, said Branch. "Most term policies do have a conversion option in them, where you can convert to a whole life at a lower face value."

However, this option can be costly, he warned.

You can purchase a new whole life policy, but it can come in many forms, so consult with an independent insurance agent or your financial advisor to find a policy that fits your needs.

Certain whole life insurance policies also can act as a valuable tax shelter for retirees, said Johnson.

"You can put money into the insurance policy and it grows tax deferred. You can also borrow from it and not pay any income tax."

"It's not cheap, but the priority is different, because you're trying to reduce future tax liability," he said.

If anyone counts on you for money, it's a good idea to have life insurance no matter your age. Keeping yourself and your family covered will help you to retire well.