Do You Actually Need Life Insurance in Retirement?

This is the question nobody wants to answer for you, because the answer depends on who you are, not what product is being sold.

In Part 1, I wrote about the industry shift I watched happen in real time at a conference in Dallas: healthcare agents pivoting to life insurance. In Part 2, we broke down the six types of life insurance in plain English, with the red flags that matter for each one.

Now the real question: do you actually need any of it?

Start With the Problem, Not the Product

Life insurance solves a specific problem: what happens financially to the people who depend on you when you die? That's it. Everything else, the cash value, the tax benefits, the "retirement income" pitch, those are features of certain products, not the core purpose.

So the first question isn't "which policy should I buy?" It's "what financial problem would my death create for someone I love?"

If you can answer that clearly, life insurance might be the right tool. If you can't, it probably isn't.

When the Answer Is Yes

There are real, legitimate reasons a retiree with assets might need life insurance. These aren't sales pitches. These are situations we see in our office.

Your spouse depends on your pension or Social Security. If one spouse receives $4,000 a month in pension income that drops to $2,000 or disappears entirely at death, the surviving spouse faces a real income gap. A life insurance death benefit can replace that lost income. This is one of the most straightforward and defensible uses of life insurance in retirement.

Your estate exceeds the federal exemption. At the time of this writing, the federal estate tax exemption is about $14 million per individual and $28 million per married couple. If your estate is above that line, the IRS takes roughly 40% of the excess. For families with illiquid assets, a business, real estate, farmland, selling those assets to pay the tax bill can be devastating. A life insurance policy inside an irrevocable life insurance trust provides immediate, tax-free cash to cover the estate tax without forcing a fire sale.

You want to leave a specific legacy. A retiree who wants to guarantee $500,000 to a university, a charity, or a grandchild's education fund can do it more efficiently with a life insurance policy than by earmarking investment assets that might fluctuate. The death benefit is guaranteed. The amount is known. The gift happens regardless of what the market does between now and then.

You have a business succession plan that requires it. Buy-sell agreements between business partners are often funded by life insurance. When one partner dies, the policy pays the surviving partners enough to buy out the deceased partner's share without going to market or forcing the family to negotiate under pressure.

When the Answer Is No

Here's where I need to be direct, because this is the part most agents won't tell you.

You are self-insured. If your surviving spouse has $2 million in investments, a paid-off house, Social Security, and no debt, your death does not create a financial emergency. It creates grief, and that's real. But life insurance doesn't fix grief. It fixes financial gaps. If there is no gap, there is no need.

Your estate is well under the exemption. If your total estate is $3 million or $5 million or even $10 million, you are nowhere near the estate tax threshold. The "estate liquidity" argument doesn't apply to you. Don't let someone sell you a solution to a problem you don't have.

Your kids are grown and financially independent. We had a couple, Steve and Nidia, come into our office not long ago. They had taken out a $200,000 term policy back in 2004 to protect their five children. The premium started at $66 a month. By the time they were 65, it had jumped to $194 a month. All five kids were grown, independent, doing well. The original purpose of that policy was completely fulfilled. They were paying almost $2,400 a year for protection nobody needed anymore.

You're buying it as an investment and there are better options. For most retirees, life insurance as an accumulation vehicle is less efficient than a well-managed portfolio, Roth conversions, or tax-managed withdrawals. The internal fees inside permanent policies reduce returns. The complexity creates risk. If the goal is growth, there are usually simpler and cheaper paths.

The Question Nobody Asks: What About the Policy You Already Have?

This might be the most important section of this entire series.

If you own a life insurance policy you no longer need, most people think they have two options: keep paying premiums, or let it lapse and walk away with whatever cash surrender value the carrier offers.

There is a third option that almost nobody talks about: a life settlement.

A life settlement is the sale of an existing life insurance policy to a third-party buyer, typically an institutional investor, for more than the cash surrender value but less than the death benefit. The buyer takes over your premium payments and collects the death benefit. You receive a lump sum now.

Here's what makes this worth knowing: an estimated $200 billion in life insurance face value lapses or gets surrendered every year in the United States. Much of that could have been sold on the secondary market for significantly more than the surrender value.

We see this in our practice. A client named Dwayne came to us with a $500,000 term policy he'd originally purchased for mortgage protection. The mortgage was nearly paid off. He'd had multiple surgeries. He was told by his carrier that the policy wasn't convertible. Through our life settlement network, we explored whether that policy had value on the secondary market. Impaired health, counterintuitively, can actually increase a life settlement payout because the buyer's expected holding period is shorter.

The point isn't that everyone should sell their policy. The point is that if you're thinking about dropping coverage, surrendering for cash value, or just letting a policy lapse, you owe it to yourself to find out what it's worth first. It takes one conversation.

The IRMAA Connection Most Advisors Miss

This is for the readers who already have a permanent life insurance policy with cash value and are wondering whether it's doing anything useful beyond the death benefit.

IRMAA, the Income-Related Monthly Adjustment Amount, is the Medicare surcharge on Part B and Part D premiums for higher-income beneficiaries. In 2026, it kicks in above $106,000 for individuals or $212,000 for married couples filing jointly. The surcharges can add hundreds of dollars per month to your Medicare premiums.

Here's the connection: money in traditional IRAs, pensions, and taxable accounts generates income that counts toward your IRMAA threshold. Money accessed through policy loans against life insurance cash value does not. A policy loan is not taxable income. It does not appear on your tax return. It does not trigger IRMAA.

So if a retiree needs $50,000 for a major expense, pulling it from an IRA could push them into a higher IRMAA bracket and cost them thousands in additional Medicare premiums that year. Borrowing $50,000 against an existing life insurance policy's cash value costs nothing in IRMAA terms.

This is not a reason to buy life insurance. But for people who already own a permanent policy, it's a reason to think twice before surrendering it. The cash value might be worth more as an IRMAA-invisible source of funds than as a lump sum check from the carrier.

One critical caveat: if the policy lapses while a loan is outstanding, the entire loan balance becomes taxable income in that year. That can create a massive, unexpected tax bill. This strategy requires careful management.

The Decision Framework

If you've read all three parts of this series, here's how to put it together.

Step 1: Define the problem. What specific financial harm would your death cause to someone who depends on you? If you can't name it, you probably don't need coverage.

Step 2: Size the gap. If there is a problem, how big is it? Income replacement for a spouse is a calculable number. Estate tax liability is a calculable number. "Peace of mind" is not a number, and it's not a reason to write a check every month.

Step 3: Match the tool. If the need is temporary, term is almost always the right answer. If the need is permanent, compare GUL and whole life based on cost and whether you need cash value access. If someone is pitching IUL, read Part 2 again and ask the hard questions.

Step 4: Review what you already own. If you have an existing policy that's outlived its purpose, don't just let it lapse. Explore a life settlement. Check whether the cash value has IRMAA utility. Talk to someone who isn't earning a commission on the recommendation.

Step 5: Get a second opinion. If an agent recommends a policy, take the illustration to your financial planner or CPA before signing. Ask them to show you the guaranteed column. Ask what happens at age 85 if assumptions don't hold. Ask what the agent earns on the sale. None of these questions are rude. They're responsible.

Why I Wrote This Series

I started writing these articles from a deli in Dallas during an insurance conference. I watched an industry pivot happening in real time. I listened to the speeches. I talked to the agency owners. I heard the optimism and the anxiety in equal measure.

The people at that conference are not villains. Most of them genuinely care about the families they serve. But caring and being qualified are two different things, and the speed of this transition concerns me.

I wrote this series because I believe the best protection for our clients, and for anyone reading this, is education. Not fear. Not a sales pitch. Just enough knowledge to sit across from someone recommending a product and know whether the recommendation makes sense for your life.

That's all any of us can ask for.

This article is Part 3 of a 3-part series on life insurance for retirees. Read Part 1 | Read Part 2 | Talk to an ARA advisor

Ian Schaeffer is the Chief Operating Officer of American Retirement Advisors. While he holds active insurance licenses in Massachusetts and Arizona, he does not practice as an agent. This article is educational and should not be considered a recommendation to purchase or decline any specific product. Always consult with a licensed professional for advice tailored to your situation.

Disclaimer: The information in this article is for educational purposes only and does not constitute tax, legal, or investment advice.