Life Insurance in Retirement

The Wall Street journal has a good article on life insurance for retirees Later-Life Insurance Rules

As people near retirement, they are often told to take take out a life insurance policy as a pension substitute.

For decades, salesmen have encouraged people nearing retirement to elect to take their monthly pension as a larger amount that will end at their death, instead of accepting a smaller monthly pension with payouts that will continue over the life of a spouse.

Supposedly, the additional pension a person receives each month can be used to buy life insurance to protect the surviving spouse.

This isn’t as simple as it sounds. To make it work, you will need to estimate the value of the pension payments the survivor will forfeit, and buy enough life insurance to replace that.

We have a tendency to agree with that, having tried to find a life insurance policy that

  • (a) will not become incredibly expensive as you get older, and
  • (b) realize taht if your spouse passes on before you do the life insurance you have been paying for is wasted.

There are reasons for buying life insurance as we get older, but they are usually associated with estate planning rather than being used as a pension substitute.  Before buying life insurance in retirement  you should be aware that life insurance is a costly investment.

Commissions and fees can consume 100% of the money you put into a cash-value policy in the first year, and high annual costs can offset much or all of the interest you might earn in subsequent years.

Before buying a policy, consult an RIA who can give you an opinion on the benefits of a policy without being influenced by commissions.


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