Financial Basics · Insurance & Protection

Life Insurance

Definition

Life insurance pays a tax-free death benefit to your beneficiaries when you die. The main types are term (temporary, cheap), whole (permanent, expensive, cash value), universal (flexible permanent), and variable (permanent, invested).

Why it matters in retirement

Most retirees are massively over-insured. If your kids are grown and your mortgage is paid, you may not need life insurance at all. But there are specific situations — pension max strategies, estate liquidity, second spouse protection — where a policy still makes sense.

Key Numbers — 2026

Term policy (65M, $500K, 10yr)
~$150/mo
Whole life (65M, $500K)
~$1,200/mo
Death benefit income tax
$0 (federal)
Estate exemption (2026)
$13.99M

Pros

  • Tax-free death benefit
  • Estate liquidity
  • Replaces pension survivor benefit cost
  • Whole life cash value grows tax-deferred

Cons

  • Whole life commissions often 80%+ of year-1 premium
  • Illustrations rely on optimistic assumptions
  • Term coverage ends before you die (by design)
  • Most retirees don't need coverage at all

Common mistakes

  • Buying whole life at 60+ when term + investing is mathematically better
  • Keeping a $1M policy after the mortgage is paid and kids are grown
  • Canceling a paid-up whole life policy (losing the tax-deferred cash value)
  • Naming your estate as beneficiary instead of individuals (creates probate)

Related

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