The purpose of life insurance changes in retirement  

One ongoing question is whether life insurance is necessary when one retires. The answer to that is………it depends.

People buy policies to ensure that, in the event of their untimely death, loved ones will be taken care of. Basically, there are two reasons why a retiree will buy insurance; one, to replace income and two, to protect one’s estate.

Many retirees continue working in retirement, some to occupy their time and others, to meet their lifestyle costs. If you are working because you need income, can your surviving spouse continue covering expenses if you die? Old Age Security benefits stop at death. CPP benefits may be reduced. If your income or benefits need to be replaced, then buying coverage makes sense.

Another reason is if you want to take out a mortgage. Providers sometimes deem it necessary for you to have mortgage insurance before the loan is processed. This can sometimes be more expensive than a straight life policy. Check with your broker.

In most cases, when one spouse dies, the assets are transferred to the surviving spouse without any tax consequences. When the final spouse dies, the estate may owe taxes. Most retirees accept the fact that their estate will be reduced by taxes, however, some would prefer that their children inherit the entire value of their estate.  An insurance policy can cover the taxes owing.

What if you determine that you do not need insurance but have an existing policy? If your policy’s premiums are paid by the dividends earned in the policy, your children can enjoy the extra inheritance. Or, you can donate this policy to a charity and get a charitable tax receipt now or at death.

If you are paying premiums for a policy you do not need, you can lapse this policy and eliminate an unnecessary expense.

If you're uncertain whether or not you need to purchase a policy, contact your financial planner to determine if it’s right for you. There are many types of life insurance available. It's best to consult with a broker to determine which policy is best for you.