I previously wrote an essay “Will I Really Need Life Insurance When I’m Older” and today I will expound upon that concept. Of course, older is a relative term. A colleague of mine says that the older we get, the older old gets, and it’s true. To children, adults are old. To young adults, 65 is old. And to 65 year-olds, 90 or 100 is old.
So it’s all perception, but for purposes of today’s topic, let’s arbitrarily set the age at 55. After all, if you talk to a 25 year old, that could be the age at which he thinks he will no longer have a need for life insurance. But, as pointed out in the previous essay, life has a way of getting in the way.
Today I see many couples in their late fifties and early sixties still supporting children. Oftentimes, it’s for no other reason than they just started a family later in life. So instead of using their peak earning years to bolster their retirement fund, they use it for familial expenses.
That situation would certainly call for some life insurance, but probably the biggest reason I see is college education. Not that they are necessarily still paying for college at that age, although they certainly could be, but rather that they borrowed on their house and/or 401(k) plan to finance it. Either one of those scenarios would not only hamper retirement plans, but both are classic needs for life insurance.
Now let’s look at a different scenario. Life didn’t get in your way. Everything went as planned, and you’re getting ready to retire debt free with a net worth of $2 million, composed of a residence worth $500,000 and the rest in cash and investments. “See, I told you I wouldn’t need life insurance when I was older!”
Congratulations are in order for a job well done. But are you aware that for a New Jersey resident, the estate tax on $2 million is over $100,000, although there is an unlimited marital deduction. I find it interesting that when I describe this scenario, the people without the $2 million estate say “So what, the kids will just get $100,000 less.” But most of the people with the $2 million estate are interested in learning of ways to preserve it, and life insurance is a very efficient vehicle in facilitating intergenerational transfers.
So yes, it’s possible that you will reach retirement age and have no need for life insurance. But what if you need it? Age 60 (or older) is not the ideal time to be buying life insurance. Sure 60 year-olds qualify for life insurance every day, some even at preferred rates, but it is much more expensive than it is at 30 It certainly seems, at least to me, that the possibility of needing insurance at older ages is a bet worth hedging while you’re young. But if that ship has sailed, it still may not be too late (although it could be too expensive).