According to a study conducted earlier this year by the Insurance Information Institute, couples that feel they no longer need life insurance after their children are grown could leave themselves vulnerable to major financial problems. The research noted that life insurance is most often purchased to protect a surviving spouse and minor children. However, these policies are typically allowed to lapse after a couple’s youngest child reaches 18.
The study went on to recommend that even though the children are grown, college tuition has been set aside and the mortgage is almost paid, couples should still discuss with their insurance agent the benefits of continuing their current coverage or purchasing another life insurance policy before their existing one expires. The most important reason for doing so is income replacement. A surviving spouse must be at least 60 years old before becoming eligible for Social Security survivor benefits. However, these benefits are allocated on a reduced basis because a surviving spouse must be 65 or older, depending on their late spouse’s birth year, to be eligible for full Social Security survivor benefits. Life insurance can help replace lost income for the surviving spouse when a wage earner dies.
When a couple is considering how much life insurance to buy, the Institute recommends they determine how much they will need to replace what is referred to as the “hidden” income that is lost when a wage earner dies. Hidden income is money an employer contributes to a 401(k) or similar savings plan, or uses to pay for employee health insurance coverage.
Other important factors to consider include the financial condition and physical health of an elderly parent, any financial commitments made when there were two incomes, such as the purchase of a second home, and the needs of grown children still living at home.