That is a common, and legitimate, question. The theory is that your need for life insurance will diminish, ultimately to zero, as your assets increase and your liabilities decrease. Nope, no way to poke a hole in that theory.
The truth is that while needs usually change, they rarely go away. Life gets in the way. Unforeseen circumstances arise. Shit happens. Any or all of which tend to wreak havoc with the nice little theory of diminishing life insurance needs.
The mainstream financial media is a big proponent of this theory. Buy term and invest the difference, they say. It’s funny, because if that was a legitimate theory, why wouldn’t it apply to all areas of our lives? Rent and invest the difference. Lease and invest the difference. Buy your clothes at a thrift shop and invest the difference. The possibilities are endless.
And yet the only area we hear about investing the difference is with regards to life insurance. One of the reasons for that is the assumption that the need for life insurance will ultimately decrease to zero. Possible, but to quote our friends from across the Pond, not bloody likely.
Sure, a (very) small minority will actually invest the difference, but statistics show that the overwhelming majority do not. And it’s not because they’re bad people, it’s because they are human. So they do what most humans do – they spend the difference.
There are many reasons people still need life insurance when they’re older, but the most common one I see is that the mortgage hasn’t been liquidated. Oh sure, that was the plan when the house was purchased, but for whatever reason (a very common reason is that the house was re-borrowed upon to help fund college expenses) it doesn’t always turn out that way.
Another reason people may still need/want life insurance when they are older; insuring their spouse’s social security benefit. While both spouses are alive during retirement, they will each collect a social security benefit. When the first one dies, then survivor will receive the higher of the two benefits, but lose the lower one. Unless the couple was saving the entire lower benefit, it will mean a lower income to the survivor, absent a life insurance benefit.
As mentioned in an earlier essay, there are many uses of life insurance other than the traditional use, which is to replace an income or retire a debt. Some of these other uses will be described in future essays, but for now remember that although needs will change, they seldom go away. So it might not be a bad idea to have some life insurance on the day you die.