As retirement gets closer, every dollar can count. You may be thinking about how much you need to retire comfortably, whether your savings will last, and where you could reduce unnecessary expenses. But have you stopped to consider whether you still need the life insurance you’ve been paying for over the years?
Life insurance can play an important role in protecting your family and finances, but your needs at 60 may look very different from when you first took out the policy. With premiums often increasing as you get older, understanding whether your existing cover still makes sense is an important part of retirement planning.
So, should you keep your life insurance, reduce your cover or consider going without it? The answer depends on your financial circumstances and the risks you still need to protect against.
Your Insurance Needs Change as Life Change
Insurance isn’t something you should set and forget. As Andy Pender explains in our latest episode of the Retire Well Podcast, the need for life insurance can change from year to year as your life and financial circumstances evolve.
When reviewing your cover, three key areas to consider are debts, dependents, and business needs.
Earlier in life, you may have had a significant mortgage and children who depended on your income. Life insurance could provide a lump sum to help your family manage financially if you were no longer there to provide for them.
As retirement approaches, however, you may have paid down much of your mortgage, your children may be financially independent, or your business responsibilities may have reduced. These changes could mean you no longer need the same level of cover.
What Happens When Your Premiums Increase?
One of the challenges people often face in their 50s and 60s is seeing their insurance premiums increase. When the cost becomes difficult to justify, cancelling the policy can seem like the simplest option. But before making that decision, it’s worth considering whether you still need the protection.
Rather than cancelling altogether, you may find that reducing your cover is more appropriate. Alternatively, your financial situation may mean a different insurance structure is worth exploring.
There is no single formula for determining how much life insurance you need. Instead, consider the financial gap between the assets you already have and what your family or other dependents would need if you died. Your debts, financial commitments and available capital all play a part in that calculation.
Think Carefully Before Replacing an Existing Policy
If you’ve had life insurance for many years, think carefully before cancelling an existing policy and taking out a cheaper one. Your health may have changed since you first arranged your cover. A new application could result in exclusions, additional premiums or different policy terms, meaning the replacement may not offer the same protection.
As Andy explains on the podcast, existing policies can be valued precisely because they were arranged when your health circumstances were different. Before switching, compare the benefits, costs and conditions of your current policy with any proposed replacement.
Reviewing Your Cover Before Retirement
As retirement approaches, the better question may be: What financial risks do I still need to protect against?
If you have significant debts, dependents or other financial commitments, life insurance may continue to have an important role. If those obligations have reduced and you’ve built up significant assets, your need for cover may have changed.
For some people, that could mean reducing their cover. For others, it could mean restructuring their insurance or keeping their existing policy.
Reviewing life insurance as part of preparing for retirement, but knowing what to keep, reduce or change isn’t always straightforward.
Want to learn more? Listen to the latest episode of The Retire Well Podcast, where Andy Pender shares insights into life insurance, changing cover as you get older, and how to decide whether you still need the protection you once did.
Tune in on YouTube, Spotify, Apple Podcasts or your favourite podcast platform to hear the full conversation and help you make more informed decisions about your insurance and retirement planning