3 surprising reasons to buy life insurance before you retire
Just about everyone has a use for life insurance. Even if you don't have people who depend on you financially, end-of-life, funeral and burial costs can be quite expensive. Without life insurance, those costs could burden the people you love.
If you're nearing retirement, though, you may be asking yourself the question, "Should I buy life insurance now or wait until I retire?"
The simple fact is that it's generally best to buy life insurance as early as possible. So, there's no better time than now to purchase your policy, and there are a few surprising reasons you may want to lock in your policy before you retire.
Purchase life insurance now to avoid post-retirement insurability and affordability pitfalls.
3 surprising reasons to buy life insurance before you retire
There are several reasons to buy life insurance. You may be using it to provide your spouse with meaningful income when you die or you may want to leave a significant estate to your beneficiaries. No matter what that reason might be, it's typically important to purchase your policy before you retire. Here's why:
Life insurance is less expensive before you retire
When a life insurance company sells you a policy, the company accepts the risk that comes with the policy — the risk that you'll die before the policy expires and they'll have to pay your beneficiaries a death benefit. The more risky the policy is, the higher the policy premiums.
Your policy poses a higher risk to life insurance companies after you retire than before retirement. As a result, your life insurance policy will likely be significantly less expensive if you purchase it before you retire.
Here's an example of how premiums can vary before and after retirement (using quote information from Ethos Life for a 65-year-old male applicant who doesn't use tobacco and is purchasing a $100,000 10-year term life policy):
- Sample rates for age 60 in average health (five years prior to retirement): Rates range from $43 to $70 per month
- Sample rates for age 65 in average health (year of retirement): Rates range from $128 to $264 per month
Based on this example, waiting just five years to purchase your life insurance could mean you pay three times the premiums or more for coverage.
You could be denied coverage if you wait too long
Life insurance companies don't have to provide coverage. Companies can deny coverage if the risk a policy poses to the insurance company is too great. And, as you get closer to your golden years, insuring you becomes more risky to life insurance companies because consumer health rarely improves in retirement.
If you wait until you retire to purchase life insurance, you could develop conditions that result in the denial of your coverage. Purchase your life insurance policy before you retire to reduce your risk of being denied coverage.
Some life insurance policies can help supplement retirement income
It's normal to fear running out of money in retirement. Your nest egg is only so big, and what happens if you outlive it?
"Some types of life insurance, such as cash-value or permanent life insurance, accumulate a cash value over time," says Jordan Mangaliman, CEO of Goldline Financial Services. "Policyholders can access this cash value during their lifetime, either through loans or withdrawals, providing a supplemental source of income in retirement."
So, your life insurance may offer more than just money to leave behind for your loved ones. It could give you a way to bridge the gap between income and expenses later in life.
How to keep life insurance costs down
As you near retirement, you may be paying closer attention to expenses. It's important that your retirement nest egg lasts, which means it's important that you keep your life insurance costs down too.
Here are a few things you can do to minimize your life insurance premiums:
- Purchase a policy now: You'll never be younger, or perhaps healthier, than you are today. As such, when you purchase a life insurance policy now, you're likely locking in the lowest rates you'll ever qualify for.
- Don't over-insure: Be cognizant of the relationship between coverage amount and cost. Avoid purchasing more life insurance than you need in order to keep costs down.
- Compare your options: Life insurance companies are free to charge the price they want for the services they provide. As such, price is a main point of competition between providers. Compare your options to find the best coverage at the lowest price.
The bottom line
Life insurance offers peace of mind that no other product can provide. However, that peace of mind gets more expensive and less accessible as you age. But if you purchase life insurance before you retire, you may be able to lock in lower rates and increase your chances of being approved for coverage.
