What I’ve Been Up To

Mailbag Monday: Life Insurance in Retirement

When does buying life insurance at the age of 74 make sense? We are thinking in terms of protecting our estate, but aren’t sure if we need to do that. We do have a trust.

— Evelyn

Let’s first talk about what life insurance is for: You purchase this insurance product when you have someone who is dependent on your income — a partner, children, perhaps elderly parents — and you want to protect them in case you die prematurely.  That means the vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product.

There are, however, a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, or Social Security payments that will be reduced. Or if you want to use it as part of an estate planning strategy, as you indicated – if you plan to pass on a large amount of money, you can use a life insurance policy to pay for estate taxes. You can also set a life insurance policy to pay into that trust you have.

But purchasing life insurance at age 74 will be extremely expensive, even if you are in good health and you’re looking at a term policy. The high premiums may not be worth it – you may be better off investing that money elsewhere. If you’re planning to go this route, I would work with a good fee-based financial advisor who focuses on estate planning to make sure you’re taking the correct approach.