When should you buy life insurance in retirement

Arvind Sheshadri has been very careful about managing his finances and is paying particular attention to it as he comes closer to retirement. His post-retiral income will be drawn from his investments and a small pension from his employer. He also intends taking up a part-time job for some years after retirement. Sheshadri’s wife is dependent on him. One of the things that he is confused about is the need for life insurance for himself in retirement. What are the things he should consider while taking the decision about insurance?

Arvind Sheshadri's decision on whether to take life insurance in retirement will depend on the need to ensure that the income available to his wife will not be affected by the unfortunate event of his demise. This, in turn, will depend on the source of retirement income for him and his wife. If this is going to be primarily reliant on him, then he has to look at insurance to replace the income that will not be available in the case of his death.

If the retiral income is from the investments that he has made, then insurance is not needed since the income from the corpus will be available to his wife even after his death. The terms of Sheshadri's pension will determine if his wife is going to receive the whole or part of it after his demise. Similarly, if the income from his post-retirement employment is going to help them meet a large part of their expenses in retirement, then insuring his life will be necessary. At this stage in his life, Sheshadri should consider insurance only to replace the income for his dependent wife, not as an investment to create a corpus.

This is because the premium for insurance at his age will be very high and taking on the expense of insurance when it is not required will be a waste of money. If insurance is required, he should look for the one with the lowest cost.

This will typically be a term insurance. Sheshadri is likely to get better terms if he renews his existing policy instead of looking for a new one. He must also periodically review his insurance needs to ensure that he incurs the expense only for as long as and to the extent that his earnings are an essential part of his household income.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL).