Life insurance for retirement

Getting life insurance for retirement isn't mandatory, but it can help when you pass away in your retirement years. For example, final expense life insurance can help your loved ones pay for expensive costs after you pass, like medical bills and funeral expenses. Or, if you got a term life policy early in life that expires around the time you retire and you'd still like to provide for your loved ones if you pass away beyond retirement, getting a permanent life insurance policy as well may make sense.

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Life insurance retirement planning

When considering retirement and life insurance, first calculate if your projected financial loss will increase or decrease depending on if you die before or after retirement. This factor helps determine your loved ones' needs before and after your retirement.

Determining your death's projected financial loss

Ultimately, understanding your death's projected financial loss can help you choose between the two main categories of life insurance policies, term life insurance and whole life insurance.

  • You have a decreasing projected financial loss if...

    …your income will go away or decrease significantly after retirement. If that's the case, you can likely project that your beneficiaries would experience much less of a financial loss if you were to die after you retire than before.

    Life insurance tips: If you have a decreasing projected financial loss and have invested well for your retirement years, term life insurance may be your best option for retirement planning. You can set the coverage to last only as long as you'd be providing an income — or shorter. Funeral insurance also makes sense if you want to cover your final expenses, no matter when you pass.

    These affordable options can help you avoid paying for more expensive policies in your retirement years when your income will decrease and when your loved ones won't be relying on you financially anyway.

  • You have an increasing projected financial loss if...

    …you plan to continue increasing your income during retirement, such as if you own a business or have a high net worth. In other words, your beneficiaries would experience a much greater financial loss if you were to pass after instead of before retirement.

    Life insurance tips: If you have an increasing projected financial loss, you'll likely want to provide for your beneficiaries through permanent life insurance in case your death would eliminate the increasing income you plan to provide even into retirement.

    Permanent life insurance (either whole life or universal life) may also help offset the cost of estate taxes before an inheritance gets passed on to your loved ones. Consult your tax advisor to understand any tax implications for your particular circumstances.

Regardless of your projected financial loss, a permanent policy makes sense if you want to ensure your death benefit will be paid out whenever you die. With a term policy, which is more affordable, you're only covered for a specific number of years. Learn more about how the types of life insurance differ.

What is a LIRP?

LIRP stands for "life insurance retirement plan." With a LIRP, you plan to use your life insurance policy's cash value to assist you financially during your retirement years.

LIRPs make sense if you're already maxing out your IRA or 401(k) and want to invest more for your retirement years. To start a LIRP, simply get a permanent policy that allows you to "overpay" your premiums. In other words, you'll pay more than the required premium whenever possible so your cash value builds faster.

Universal life insurance is known for having flexible premiums and can be used as a LIRP. And even if you don't overpay every premium, your policy's cash value will grow over time. There's also indexed universal life insurance, which allows for some cash value growth through an equity index account.

How do I select life insurance I can afford into retirement?

You can typically change how much your policy costs by adjusting these two life insurance cost factors: how long your policy will last and how much it will pay out upon your passing. Policies that last less time and have lower coverage amounts are more affordable. Keep in mind that your age and health may affect the coverage amounts you're eligible for.

Ideally, you select the amount that can adequately provide for your beneficiaries for the length of time they'll need support — and at a premium you can afford over time. Remember to factor in your savings, investments, and how your financial situation will change when you retire.

If you're in your 50s or older, final expense insurance is affordable, easy to qualify for (even for older individuals), and permanent. But if you have significant financial obligations heading into retirement or want to leave your family a larger sum of money when you pass away, then you should consider term or other permanent life insurance options instead. Learn more about life insurance for seniors.

Selecting a coverage length

If you decide to purchase term life insurance, you'll be given term length options, usually between 10 and 30 years, depending on your eligibility. The maximum term period you're eligible for typically decreases as you age. If you're in your 20s or 30s and planning for retirement, it can make sense to opt for the longest term you qualify for. That way, the policy is in effect for as long as possible while you're still providing an income for your family.

However, suppose you're buying life insurance during retirement because you want to cover the remaining balance on a 15-year mortgage you got five years ago. In that case, 10 years of coverage may make more sense. Learn more about how long your life insurance should last.

Selecting a payout amount

When determining the payout amount your loved ones will receive upon your death, add up their expected living expenses, emergency costs that may come up, and any potential outstanding debt. Remember to consider how long you want to take care of your loved ones for each of those expenses.

Life insurance payouts might be distributed all at once or over time (as a life insurance annuity), so your beneficiaries will need to plan accordingly. Learn more about how much life insurance you need.

Pro tip:

Some industry experts suggest choosing a life insurance policy that lasts longer than you think you'll need. Premiums are often based on age, meaning your potential premium will never be lower than it is right now.

What happens to my life insurance when I retire?

Individual life insurance policies you have won't be affected by your retirement. However, most employer-provided group life insurance policies end when you retire. In some cases, you may be able to transfer or "port" your employer life insurance to continue your coverage, but this is dependent on the group policy's terms.

If your employer-provided coverage ends and you don't already have supplemental life insurance, you can look into getting an individual life policy like final expense insurance, also called burial insurance. It's affordable and designed for older individuals. Learn how final expense policies work.

How to calculate life insurance for retirement

Before comparing your retirement life insurance options, use our life insurance calculator to determine how much coverage you need. Then get a life insurance quote in minutes through Progressive. Or call 1-866-912-2477 to discuss your coverage options with Progressive Life by eFinancial.

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Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.