In many cases, the best way to determine if you need life insurance in retirement is to apply the golden rule “Only buy insurance if you need it.” If you don't need it, then get rid of it.
But use caution before you cancel your life insurance policies
Before you cancel life insurance make sure you've covered all the angles because you have one chance to make the right decision. Once you cancel, it's really tough to get it back and in many cases, you won't be able to get it back. Here are some important things to think about before you cancel your life insurance policy:
- Talk to your beneficiaries. Before cancelling insurance, maybe it makes sense to have a discussion with your beneficiaries about why they may want to keep the policy in place and pay for the premiums. Insurance can be one of the best investments your beneficiaries ever make. Open up the lines of communication about two tough topics – death and money.
- Talk to your spouse. If you have a spouse, they are likely to be the key beneficiary of your life insurance policy. Have a good realistic discussion about whether they need money when you pass away.
- Get a medical. One piece of advice before cancelling insurance is to get a complete medical examination. The feasibility and cost of life insurance all depends on life expectancy. If you go and get a complete check-up and discover your life expectancy might be shorter than you think, you may want to think twice about cancelling your insurance. Life insurance is one of those things that is easy to get while you are healthy and really tough to get when you are not.
- Converting Group insurance. A complete check-up will also help you in the decision to convert group insurance into a personal policy or whether you don't maintain coverage after retirement. If you are not healthy, then you may want to consider converting the group insurance into a personal policy because it provides coverage without underwriting. If you are healthy, they you may be able to get insurance on your own for a more cost effective price.
- Keeping wholelife and universal life might not be a bad thing. It is tough to replace permanent policies because they become more valuable, the longer you own them. Much of the costs happen up front in the early years. Later in life, it is difficult to replace these policies because you can never buy the insurance cheaper. Some people get lured into cashing out the policies because of the cash value of these policies but cashing out means you will lose the death benefit. Before you cancel, consider talking to your beneficiaries about taking over the payments on the policy, as it may be the best investment they ever make.
- Don't wait until costs are too high. Remember, insurance costs more the older you get. Waiting to make decisions till you retire might mean choices will be more limited due to costs.