Life insurance isn’t just for the working years of your life. It does much more than replace income to your family.
Life insurance for retirement is all about leverage. There are so many ways to leverage your assets and income using life insurance, and the concepts are simple.
The hardest part about some of these may be qualifying. Most Americans retire in their 60’s, and health can sometimes be an issue. Luckily, we can still work with the clients who have additional medical concerns.
But, not everyone needs life insurance for retirement. You’ll need to look at your situation individually.
Life Insurance For Retirement
It’s not often a client will ask their adviser if they can go ahead and cancel their life insurance once they are retiring. But is this a smart decision or does it have a long term impact?
While each persons situation is unique, a small amount of life insurance, at minimum, is usually a good idea. Life insurance for retirement works the same as any other time, but it might simply serve a new purpose.
Life insurance, as a leverage tool, amplifies paid premiums over an extended time period to a significantly larger death benefit. This multiplying effect turns dollars now into a large pool of cash at the time of claim.
During your working years, this replaces income, pays bills, and takes care of family members in many ways. In retirement, it might replace income from pensions or other benefits, it may pay medical or funeral bills, and it can still take care of family members.
The shift to retirement thinking is a vastly different one than your income producing years, but the consideration for life insurance still needs to be applied.
- Is your income replaced by pension? If so, are you maximizing this income with a life insurance policy?
- Is there a chance you could leave bills behind if you died sooner than later?
- Would you like to multiply your money today into a much larger gift down the road for family or charity?
These are all questions life insurance for retirement can solve. The purpose of the life insurance may have changed over time, but the product itself still works the same. In retirement, you just need to figure how much is the right amount, and for how long will it still serve a purpose?
Not everyone needs life insurance for retirement, and one such example would be a person with excess assets, no debts, and no particular interest to leave anything above and beyond what they have. In this case, it’s perfectly normal to forego a policy. Perhaps just asset protection like long term care insurance is all which is required.
Unique Situations For Retirement Life Insurance
There are a few scenarios which actually might require additional life insurance once retirement is near, or special circumstances have changed.
For example, let’s take an ensuing pension benefit in the coming future. Most of the time, when a pension benefit begins, you have elections to take income in different amounts, and they’re guaranteed in different ways.
You may be able to take the maximum benefit, but if you die, your spouse gets nothing. You could take a reduced benefit and now your spouse might get half the benefit for their life also. Or, you may be permitted to take a greatly reduced benefit where both you and your spouse get the amount for as long as both of you live.
Life insurance in this scenario, if you can qualify, could allow you to take the maximum benefit and offset the spousal benefit. If you were to pass, the pension benefit might end, but the life insurance policy would provide a large enough benefit to replace the income in the long run. This is called a pension maximization plan.
Another scenario might involve a significant estate. Estate taxes are currently at a level where there are immediate taxes due when a multi-million dollar estate settles. The exemption amount is high, yet it could be reduced drastically.
In this scenario, a life insurance policy would yield enough to pay some or all of the estate taxes by leveraging dollars already contained in the estate. This type of planning requires additional work from an estate attorney and tax planner, so consult your own team of professionals if need be.
If you are not sure if you still need life insurance for retirement, or if you have a more specific question like what is decreasing term life insurance, contact us and we’ll be happy to answer any questions you may have. If you need life insurance, feel free to get a quote and we’ll help you find the most affordable coverage on the marketplace.