Protecting your retirement planning with insurance

Life insurance can help you manage what’s unpredictable while you save for your future and after you retire. And depending on your personal situation, there are ways to use life insurance that you may not have considered.

In your working years

As a single person of any age without a partner or financial dependents, you might feel life insurance isn’t necessary. But if you died unexpectedly, would there be enough in your retirement plan or other accounts to pay funeral, medical and estate administration expenses? Or if you have loans or a mortgage with a co-signer, would your co-signer be stuck with the repayments? Having life insurance could be a practical solution in either case.

Once you add a partner or children to your life, insurance can help meet a variety of needs that are likely to change over the years.

During your early and middle working years, if you died unexpectedly, life insurance could replace some of what you would have earned. For a spouse, children or parent depending on your support, cash from an insurance payout would be immediately available to:

  • Help with food, clothing and housing expenses
  • Pay off debts and the mortgage on a home
  • Provide funds for a child’s educational expenses
  • Cover end-of-life expenses

With the pressure of those financial obligations relieved by insurance, the surviving spouse could continue to set aside retirement savings during their career.

Stay-at-home Parents

Stay-at-home parents don’t have the advantages of saving for retirement in an employer-sponsored plan. So if you’re a couple – one in the workplace, the other at home – consider life insurance. It could help a surviving spouse maintain the family’s current standard of living or provide a potential source of supplemental retirement income.

As you get older, you may not need as much life insurance as before. But you’ll want coverage if you are married and still working. Couples who feel they haven’t saved enough for retirement might want to protect each other with life insurance, especially in the years just before they quit their jobs. That way, the death of one spouse wouldn’t leave the surviving spouse short on savings.

During retirement

When you review your retirement spending plan, you’ll naturally look for ways to reduce your expenses. There are items that will be easier to cut, like what you used to spend on work clothes and commuting before you retired, but insurance is different.

If you think of insurance only as a product or focus only on its costs, you may consider it a luxury that you no longer need. In reality, insurance is a practical way for retirees to keep retirement planning on track.

Insurance protects your income in retirement. For example, if one spouse dies after retiring, the surviving spouse might find it difficult to meet income needs, especially if the late spouse’s pension or Social Security benefits cease. A life insurance payout could help replace those income sources.

With enough insurance proceeds to meet living expenses for a while, surviving spouses could choose to delay withdrawals from their retirement plan accounts. Giving the investments in their accounts more time to accumulate could make their retirement assets last longer, potentially reducing the risk of running out of money in retirement.

Time affects costs

When you apply for a life insurance policy, your age, health and other factors will help determine whether you qualify and what you’ll pay for coverage.

Life insurance premiums are based on actuarial tables that predict your life expectancy. So before you decide to buy or cancel a life insurance policy, keep in mind:

  • Purchasing life insurance at a younger age in good health can give you access to a wider choice of insurance policies and lower rates.
  • The older you get, the stricter the insurer’s requirements to qualify for a new policy because each year you are closer to your life expectancy.
  • Buying insurance later in your life could limit your choices and increase your costs sharply.