Do You Need Life Insurance When You Are Retired?

Life insurance is sometimes viewed as something for younger Canadians. Typically, people envision they only need it to protect them while raising a family, paying off a mortgage, or running a small business. While that may be true for some, what about Canadians who have reached or are nearing retirement? Do they still need life insurance?

Over the years, your financial situation evolves. If you had children, by now they may have grown up and have moved out on their own. Your mortgage may be smaller or paid off entirely. Or perhaps you’re looking to wind down your business operations. You may wonder if life insurance still fits into your financial plan when you’re older.

In this guide, we’ll cover the reasons why you may need life insurance when you’re retired, the key factors to consider, and how to choose the appropriate coverage for your goals.

Key takeaways

• Life insurance for retirees may help to cover debts, end-of-life expenses, or leave a legacy.

• The decision to have life insurance will depend on factors such as whether you’re debt-free, have dependents, have sufficient savings, or have estate planning goals.

• If you have life insurance through your current employer, upon retirement, you will likely lose your coverage, so you should consider a private plan.

• There are various types of life insurance available, including term life insurance and permanent life insurance. Choosing the right policy depends on your needs, lifestyle, and priorities.

Understanding life insurance in retirement

When retirement is on the horizon, it’s essential to have created a retirement plan. For those who have life insurance, elderly individuals can take comfort knowing that they’re financially protecting their loved ones. It also serves as a safety net to replace lost income or cover future expenses. Furthermore, if there’s any lingering debt during retirement, life insurance could be a viable solution to help repay costs in the event of a passing, so it doesn’t come out of your estate.

Once you retire, your priorities will likely shift. You may want to leave a legacy or donate to charitable organizations that are dear to you. Life insurance as a senior can help play an important role in ensuring you reach those goals while your financial well-being is taken care of.

What to consider before getting life insurance in retirement

Adding life insurance to your financial planning goals can be a long-term commitment. There are a multitude of factors to consider before you decide if life insurance can help meet the needs of your financial situation.

Here are some essential questions to ask yourself:

Do you have dependents?

Consider whether you have family members who rely on you financially and need to be provided for after you’re gone. For example, you may have a mortgage, children or grandchildren who need assistance paying for their post-secondary education, or you wish to leave them a legacy.

Another thing to consider is whether you have a spouse who would depend on your retirement income in the event of your passing. Your retirement income may include your Canada Pension Plan (CPP), Old Age Security (OAS), or any pension benefits from an employer. In these instances, a life insurance payout could replace a portion of your lost income, helping your partner maintain their standard of living after you’ve gone.

Do you have outstanding debts?

Being retired doesn’t necessarily mean being debt-free. You may still carry a mortgage, car loan, or consumer debt into your later years. One benefit to life insurance is that it can help cover those debt obligations when you pass away. That way, your loved ones aren’t burdened financially. 

Do you have money to cover your final expenses?

In Canada, the cost of a funeral can vary based on the type of service you choose. For instance, cremation costs from $2,000 to $5,000. In contrast, the cost of a burial ranges from $5,000 to $10,000 or more in Canada. Life insurance for seniors can help cover your final expenses, as well as medical bills even when you’re retired.

Do you want to leave a legacy?

For some older Canadians, life insurance is a meaningful way to leave a financial legacy to loved ones or a charitable cause. This generous gesture allows you to give back and support those who matter the most to you. Because the payout from life insurance is tax-free, it serves as an efficient tool to achieve these goals and transfer wealth to the next generation.

Will it help with estate planning?

Life insurance could help with estate planning by providing funds to cover any taxes owed after death. That means your heirs receive the full value of your estate without needing to sell property or other assets to pay those tax bills.

What is your current health?

It’s important to understand that your health or any preexisting conditions will impact the cost and availability of life insurance. The main reason is that the premiums are usually  higher if you apply for coverage nearing retirement. Be sure to weigh the cost of coverage with the benefits life insurance provides.

Will your employer’s group insurance end?

While you may have a life insurance policy as part of your employer’s group insurance, it usually ends within 90 days of leaving the company or retiring. However, some companies may give retirees the option to continue receiving group benefits in retirement through a group benefits conversion plan.

Before retiring from your job, take time to understand how retirement will impact any employer-sponsored group insurance you may receive. If coverage ends, consider obtaining private insurance to maintain your life insurance coverage and peace of mind.

When life insurance may not be necessary in retirement

There are certain situations in which life insurance during retirement may not be needed. Here are the most common reasons why older Canadians may not require coverage:

You have no dependents

If you don’t have children, grandchildren, or other family members who rely on you financially, then life insurance may not be a top priority for you. However, you may still consider a small policy that could be used to covering end-of-life expenses or donate to a cause you care about.

You are debt-free

You may have paid off your mortgage or car loan and no longer need to make ongoing debt payments. If you don’t have any outstanding debts, your estate may not need additional funds to settle outstanding obligations.

You have sufficient savings

Perhaps you’ve spent a lifetime accumulating wealth over the years. If you have a robust retirement portfolio or other assets that adequately cover final your expenses and provide for loved ones, extra life insurance may not be necessary.

You have other income sources

You can tap into other sources of income, such as government benefits like CPP and OAS, an RRSP, pension, or spousal RRSPs.  These sources of income may provide adequate financial security for your loved ones once you pass away.

Compare life insurance for retirees

There are many factors to consider when choosing life insurance for the elderly. Here are the main differences among the most common types of life insurance in Canada so you can choose the right policy for your needs:

If you have questions about which life insurance product is right for you, an accredited advisor can also help you assess your needs recommend suitable coverage options for your individual circumstances.

Life insurance during retirement is not one-size-fits-all

Whether you need life insurance when you’re retired depends on your unique financial situation, lifestyle goals, and the legacy you want to leave behind. Before deciding, evaluate your coverage options and make sure that you have a budget to cover premiums in retirement.

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