Many Canadians question the need for life insurance after the age of 50. The value of life insurance after age 50 will depend on your particular situation, including whether a financial loss would result if you were to die and if it’s worthwhile as an investment. Some individuals don’t need life insurance (e.g., they are single, financially secure, have no debts, or no financial dependents) but there are also circumstances where life insurance can be invaluable. Also keep in mind that life insurance proceeds are not taxable by the Canada Revenue Agency.
Who Needs Life Insurance?
Situations where life insurance is needed may include those where couples are in their peak earning years, while they are paying down a mortgage or saving for retirement. The remaining spouse could lose a substantial portion of family income if one spouse dies and is unable to keep the home on a single income. To reduce the risk of becoming financially strained, many couples maintain a life insurance policy for insurance reasons until both of them retire. Parents with minor children would also benefit from life insurance protection by ensuring that funds are available for their children’s care should they die prematurely.
There are other good reasons to maintain a life insurance policy. Families who expect the estate to have a large tax liability (e.g., from having a large, illiquid estate), such as income tax and estate administration tax (probate fees) would benefit from a life insurance policy to cover these costs. Business owners, business partners and key employees employed by a small business are likely to have insurance in order to help with succession planning (to avoid having to immediately sell business assets if there is insufficient income).
Keeping Life Insurance as an Investment
If you have been paying into a permanent life insurance policy for some time and no financial loss would result if you failed to have the plan, then you may not need the plan but may prefer to continue it to leave the proceeds to benefit a family member, friend or charity. Many individuals recognize that cancelling a whole life or universal life insurance plan that has been paid into for years would only benefit the insurance company who collected the premiums without making a payment.
Choosing to Terminate an Insurance Plan
You may feel less committed to the plan if the relative cost of insurance is high compared to the premiums paid. Term life insurance becomes more expensive as you age, though some people view life insurance as a guaranteed investment because everyone will eventually die.
Letting Your Financial Plan Guide Your Insurance Decisions
The decision about whether to have life insurance after age 50 should fit into your overall financial plan and help to you to meet your goals and objectives. If you can comfortably afford the monthly amounts to keep up a life insurance plan and the payout (adjusted for inflation) is greater than the premiums you pay, you may want to keep the policy. Be sure to consider your life expectancy however in deciding whether to keep a life insurance plan beyond your need. If there is no financial loss after your death and you still have a long life expectancy, then a life insurance plan’s value may be less than some other investment plan.
