Is permanent life insurance necessary in retirement?
I have a salesman trying to convince me that permanent is a great option. What I can't wrap my head around is why I would want permanent life insurance in my old age if I have a retirement nest egg. If I passed away my spouse could live off the nest egg just like she would if I wasn't there.
It seems to me that life insurance is income insurance. If you don't have income, why do you need life insurance?
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You are exactly right, life insurance is income insurance to replace your income for people who depend on it. If you are retired or have assets to take care of those that rely on you then you are self insured.
Also consider the duties of a parent that may not generate an income; maybe child care, housework, meal preparation, tutor, transportation, etc. That person should be insured considering what it would cost to replace them.
A common guideline is term life at 7 to 10 times your annual salary (or equivalent) for the length of time until you are retired or self insured.
This permanent life policy is a great option for the salesman, probably in the thousands of dollars in commission.
Permanent life Insurance tries to do two things: act as insurance; and act as an investment vehicle. In many cases it doesn't do a very good job as a combination. In the cases where the insurance portion is not very important, permanent insurance is decidedly not the way to go.
If you are retired you still need to invest because your retirement, or the retirement of your spouse, could last for decades. Your life insurance needs are much reduced as a retired individual.
In cases where there is a pension involved, then the insurance policy is not readily apparent. The premium is essentially the difference between the pension pay outs for single life, vs joint life. Some families self insure by purchasing a policy to cover the situation where the main pension stream would end if one person dies. Unless that is your situation the only other reason for a insurance policy is for tax situations. Generally there has to be significant money involved, and most families have no need for that level of tax planning.
Since the insurance is not needed, focus on managing your investments to keep the lifestyle you need. Avoid the permanent insurance sales pitch, the only one it is good for is the salesman.
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