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Life insurance at retirement serves different purposes than it did when you were younger. You're no longer protecting against lost income for young children—instead, you're focused on covering final expenses, protecting your spouse's lifestyle, eliminating debt, and leaving a legacy.
The good news: there are life insurance options specifically designed for people over 65, including policies that don't require medical exams and coverage that fits into retirement budgets.
Replace Lost Social Security Income: When you die, your spouse loses one Social Security check. If you receive the higher benefit, your spouse's household income drops by that amount. Life insurance can replace this lost income.
Cover Final Expenses: Funeral and burial costs average $7,000-12,000. Without life insurance, your family must pay these costs out of pocket during an already difficult time.
Eliminate Debt: Outstanding mortgage, car loans, or credit card debt doesn't disappear when you die. Life insurance ensures your spouse isn't left with financial obligations.
Protect Your Spouse's Lifestyle: Beyond Social Security, your spouse may lose pension income, retirement account withdrawals, or other income sources. Life insurance bridges this gap.
Leave a Legacy: Want to leave money to children, grandchildren, or charities? Life insurance provides guaranteed funds for the people and causes you care about.
Life insurance comes in two fundamental types:
Term Life Insurance: Coverage for a specific period (10, 15, 20 years). If you die during the term, beneficiaries receive the death benefit. If you outlive the term, coverage ends. No cash value. Lower premiums. Best for temporary needs.
Permanent Life Insurance: Coverage for your entire life as long as premiums are paid. Includes cash value component that grows over time. Death benefit guaranteed to pay out eventually. Higher premiums. Best for lifetime needs.
The fundamental question: Do you need temporary protection or lifetime coverage?
The right amount depends on what you're protecting against:
Coverage Needed: $10,000-$25,000
Covers: Funeral services ($2,000-$3,000), casket ($2,000-$10,000), burial plot ($1,000-$4,000), headstone ($1,000-$3,000), burial vault ($1,500-$3,000), immediate expenses ($500-$1,000).
Coverage Needed: $100,000-$500,000
Calculate: Multiply the annual income your spouse would lose by the number of years they'd need support. Factor in Social Security reduction, pension loss, and retirement account withdrawal changes.
Example: Your spouse will lose $24,000/year in Social Security when you die. They're 65 and expected to live to 85. $24,000 × 20 years = $480,000 needed.
Coverage Needed: Total outstanding debts
Add up: Remaining mortgage balance, car loans, credit cards, medical bills, and other obligations. Cover 100% to leave your spouse debt-free.
Coverage Needed: Whatever amount you want to leave
Consider: Equal amounts to multiple children, college funds for grandchildren, charitable donations, or specific bequests.
Medical Underwriting (Traditional): Health questionnaire, medical records review, paramedical exam, blood/urine tests. Timeline: 4-8 weeks. Classifications range from Preferred Plus (best rates) to Standard (higher rates) or Declined.
Simplified Issue: Limited health questions, no exam, automated approval in 24-48 hours. Premiums 15-30% higher. Coverage limits typically $100,000-$250,000.
Guaranteed Issue: Automatic acceptance, no health questions. Same-day approval. Highest premiums. Coverage limits $5,000-$35,000. Often includes graded death benefit.
Modern life insurance policies often include living benefits riders that let you access the death benefit early under certain conditions.
Terminal Illness: Diagnosed with 12-24 months or less to live. Access 25-100% of death benefit to pay for medical care, travel, or end-of-life wishes.
Chronic Illness: Can't perform 2 of 6 activities of daily living (bathing, dressing, eating, toileting, transferring, continence). Access funds to pay for long-term care.
Critical Illness: Heart attack, stroke, or cancer diagnosis. Some policies allow early access to help with medical costs and recovery.
Why this matters: Life insurance becomes protection you can use during your lifetime, not just a death benefit for your family.
Death Benefit: Generally income tax-free to beneficiaries. $500,000 death benefit = $500,000 received tax-free.
Estate Taxes: Death benefits are included in your taxable estate. For 2026, estates over $13.61 million face federal estate taxes. High-net-worth individuals may use irrevocable life insurance trusts (ILITs) to remove policies from taxable estates.
Cash Value Growth (Permanent Policies): Grows tax-deferred. No taxes owed on growth while it accumulates inside the policy.
Policy Loans: Not taxable events as long as policy remains in force. Borrow against cash value without triggering taxes.
Withdrawals: Withdrawals up to your premium basis (amount you've paid in) are tax-free. Amounts above basis are taxable as ordinary income.
Avoid Probate: Passes directly to beneficiaries, bypassing probate. Funds available within days instead of months.
Estate Liquidity: Provides cash for estate taxes, debts, or expenses without forcing asset sales.
Equalize Inheritances: Leave business to one child, life insurance to others for equal inheritances.
Fund Trusts and Charitable Giving: Can fund trusts for minors or special needs, or name charities as beneficiaries.
Life insurance at retirement addresses different needs than during your working years, but it remains a crucial tool for protecting your spouse, covering final expenses, and leaving a legacy. Whether you choose term for temporary needs or permanent for lifetime protection depends on your specific goals, health, and budget.
At A&E Insurance Agency, we help you determine how much coverage you need, compare term versus permanent options, and find policies that fit your health situation and budget. Schedule a free consultation to explore your life insurance options.
