What happens to life insurance when you retire?

Find out what happens to life insurance when you retire, and the various options you have with the policy.

3 min read

Most employers offer life insurance coverage as one of the benefits available to their employees. This benefit is offered at little to no cost to employees, and it won't cost more than a few hundred dollars per month for coverage. But, if you are about to retire, or you are already retired, you may want to know what will happen to your policy.

When you retire, you will no longer be eligible for your employer-provided life insurance plan. However, if your group life policy is portable, you may be allowed to transfer the policy to another insurance provider, but you should expect to pay higher premiums. If the policy is not transferable, you should purchase a life insurance policy from another insurance provider.

What happens to life insurance when you leave a job?

Group life insurance policies are held by employers, and they are offered to employees as employment benefits. This means that the only designated people who are covered under the policy are those employed by the entity that holds the policy. Once an employee leaves the company, they will no longer be eligible for the life insurance coverage.

When you change jobs or retire, you may have several options with the life insurance policy. Here is what you can do:

Cancel or let the policy lapse

If you have a life insurance policy with your employer, this coverage will apply for as long as you are covered by your employer. Once you leave your job, the policy will terminate about a month after leaving your job. If you don't want a lapse in coverage, you should plan to have a new policy take effect when the old policy is canceled.

Check if the policy is portable

Some life insurance policies are portable, meaning that you can carry the policy when you change jobs. If your employer’s policy is portable, you will be able to carry the policy to an individual term life insurance policy. However, you should expect to pay higher premiums than the original premiums for group policy.  

Convert group policy to an individual policy

If you are unable to port your group life policy, you may be able to convert it to an individual life insurance policy. If allowed, you will now be required to pay the entire premium on your own, since the policy is no longer on your employer’s plan.

Can you keep life insurance when you retire?

If your employer provides life insurance coverage, this coverage will be automatically terminated when you retire. Usually, life insurance is offered as a benefit to active employees, and it lapses when you cease being an employee of the company. However, some employers may allow retiring employees to convert the policy into a permanent life plan to keep the insurance coverage.

Additionally, some insurance providers allow the transfer of group life policies. When you retire, you may be allowed to transfer the policy to another insurance provider to continue enjoying the coverage. However, transferring the policy to another insurer may require you to pay higher premiums depending on the policy rates of the new insurer.

If your employer does not allow the transfer of a life policy to another insurer, you can choose to purchase a life policy from another provider. This option allows you to compare policy premiums and coverage to find policies with the best rates for long-term coverage.

Do you need life insurance when you retire?

Depending on your lifestyle and health status when you retire, you may need a lot of money to meet your financial needs in retirement. If you are planning to get life insurance when you retire, here are questions you should ask to help you decide.

Do you have financial dependents?

If you are retired, and you have a spouse or children relying on your retirement income, you should purchase a life insurance policy. If you die, the insurer will pay a death benefit to provide a financial cushion. The amount of insurance you need depends on your current standard of living and the amount of income you need each month. The policy should provide enough death benefits to supplement any income that would be lost after your death.

Do you have outstanding debt?

If you have outstanding debts such as a mortgage loan that you will otherwise leave to your family, a life insurance policy may be an effective way to cover these debts. You will want to get a life policy that will be sufficient to pay off the outstanding debt. For example, if you owe $60,000 on your mortgage loan, and you don't have other incomes, you should purchase a policy that covers this amount. This ensures that your family will continue staying in the home, and won't face financial hardships due to the debts you left behind.

Do you want to replace your retirement income?

If you receive a pension or Social Security, you can purchase a life insurance policy to maintain or supplement that income for your loved ones. For example, if your spouse won’t be eligible to receive the pension after you die, the policy will provide a death benefit to replace the pension income. Also, the policy will provide an income to supplement Social Security payments for your spouse after you die.

How much life insurance should you have in retirement?

The amount of insurance payouts you want your dependents to receive will determine how much life insurance you will need. Typically, you should consider your loved ones' future expenses, outstanding debts, and any expected costs that may arise. You should ensure that the death benefit is enough to meet their financial needs.

You should also consider the type of life insurance you buy. If you purchase term life insurance, you will receive payments based on a predetermined period, and if you outlive the policy, you won’t be eligible to claim any benefit. On the other hand, permanent life insurance last an entire lifetime, and it combines a death benefit with a cash value savings component.