Should You Keep or Sell Your Life Insurance in Retirement
As you enter retirement, your financial priorities begin to shift. What once made sense—like maintaining a large life insurance policy—may no longer align with your current needs.
Many Canadian seniors find themselves asking:
Should I keep my life insurance policy, or is it better to sell it for cash?
The answer depends on your financial situation, health, and long-term goals. In this guide, we’ll walk through both options to help you make an informed decision.
Why Retirees Reconsider Life Insurance
Life insurance is typically purchased to:
● Protect dependents
● Cover debts (like a mortgage)
● Provide income replacement
But in retirement, those needs often change. You may:
● Have no dependents relying on your income
● Be mortgage-free
● Have sufficient retirement savings
At the same time, new financial pressures can emerge:
● Rising healthcare costs
● Long-term care needs
● Inflation impacting your savings
This is why many retirees begin exploring ways to unlock value from their life insurance policy.
Option 1: Keep Your Life Insurance Policy
Keeping your policy may still make sense if:
You Want to Leave a Legacy
If your goal is to provide a tax-free benefit to your heirs, maintaining your policy can be a powerful estate planning tool.
You Can Comfortably Afford Premiums
If premiums are manageable and not impacting your lifestyle, keeping the policy may be worthwhile.
You Have Estate Planning Needs
Life insurance can help cover taxes, equalize inheritances, or support charitable giving.
Option 2: Sell Your Life Insurance Policy (Life Settlement)
A life settlement allows you to sell your life insurance policy to a third party in exchange for a lump-sum cash payment.
In Canada, this option is becoming increasingly relevant for retirees who:
● No longer need their coverage
● Are struggling with premium payments
● Want to improve their retirement cash flow
Benefits of Selling Your Policy
Immediate Cash Payout
You can receive significantly more than the policy’s surrender value.
Eliminate Premium Payments
Once sold, you no longer need to pay premiums.
Flexible Use of Funds
Use the money however you choose:
● Healthcare or long-term care
● Supplementing retirement income
● Helping family members
● Paying off debt
Keep vs Sell: Key Questions to Ask Yourself
To determine the right path, consider the following:
- Do I Still Need the Coverage?
If no one depends on your policy financially, selling may be worth exploring. - Can I Afford the Premiums Long-Term?
Rising premiums can become a burden in retirement. - Would I Benefit More from Cash Today?
A lump sum now may have more impact than a future death benefit. - What Are My Estate Goals?
If leaving a legacy is a priority, keeping the policy may make sense.
Real-Life Scenario
Example:
A 79-year-old retiree owns a $500,000 life insurance policy but no longer needs coverage. The annual premiums are putting pressure on their fixed retirement income.
● Option 1: Surrender the policy → Receive approximately $35,000 in cash value
● Option 2: Keep paying premiums → Continue paying $9,200 annually to maintain the $500,000 death benefit
● Option 3: Sell the policy → Receive between $140,000 as a lump sum and eliminate all future premiums
For many Canadians in similar situations, a life settlement offers a practical middle ground—unlocking significantly more value than surrendering, while removing the ongoing cost of keeping the policy.
Is Selling Life Insurance Common in Canada?
While life settlements are more established in the U.S., awareness is growing in Canada. Many policyholders are unaware that selling their policy is even an option.
As more retirees look for creative ways to access liquidity, life settlements are becoming an increasingly important financial tool.
When Selling May Be the Right Choice
Selling your life insurance policy may be worth considering if:
● You no longer need the coverage
● Premiums are becoming unaffordable
● You want to access cash to improve your retirement
● Your financial priorities have changed
Final Thoughts
There’s no one-size-fits-all answer. The decision to keep or sell your life insurance policy depends on your personal circumstances and financial goals.
However, one thing is clear:
Before surrendering or cancelling your policy, it’s important to understand all your options.
A life settlement could provide significantly more value—and help you make the most of your retirement.
Are you considering a life settlement for your life insurance policy? Wondering if you’re eligible to sell your life insurance policy? Learn more about selling your policy and find out if you qualify for a life settlement by contacting the experts at Canadian Life Settlements today.
