Whether offered by your employer or taken out privately, life insurance makes for excellent financial planning when you have a growing family. However, as you near the age where you are about to stop working, you might feel that it makes sense to cash your life insurance in or let it lapse.
Since life insurance protects your family from income loss, it can prove invaluable to them even after you retire. Learn more about why you may need life insurance, even after retirement.
Key Facts
- Maintaining life insurance after retiring can ensure your family doesn’t need to worry about debts after you pass away.
- With life insurance, you can choose one or more beneficiaries to receive a tax-free death benefit not subject to probate laws.
- Permanent life insurance provides an income as long as you live, helping you cover unexpected medical expenses or nursing home care.
- Whether you have dependents or debt, maintaining your life insurance is vital after retirement.
- Maintaining life insurance during retirement can help pay estate taxes and other expenses, thanks to its cash value.
Types of Life Insurance and Their Role
The primary wage earners in a home should have life insurance to protect their family income should any should pass away.
There are two life insurance categories and these are known as term life and permanent life. With term life, you choose the period you want coverage (usually between 10 and 30 years). Permanent life policies make the best policies for estate planning where someone wants to leave a legacy or charitable contribution.
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Let’s look at some of the details about why you would need life insurance after retiring:
1. Paying Debt
Interestingly, data from 2016 shows that 60% of households where the key earner is 65 years or older had a median debt of $31,300. These figures continue to grow and looking back, we see that the statistics for 1992 were 41.95% and 51.9% in 2010.
People mostly have life insurance policies to ensure their loved ones still have an income after they die. However, since more people than ever have debts well into retirement age, their death can lead to financial hardship for their families. Therefore, life insurance can help cover any loans or debts upon their deaths.
2. Leaving a Tax-Free Legacy
One of the best ways to leave a tax-free death benefit to your heirs is with a life insurance policy. When you have life insurance, you don’t need to worry about living frugally, so you can leave some cash for your beneficiaries. Instead, you can spend as much as you want on yourself, and the money from your life insurance will go to your heirs without being subject to the legal process for settling estates known as probate.
Finally, since your life insurance policy is a contract with the insurer, as long as you pay your premiums, your heirs receive the money you intended.
3. Benefits of a Permanent Policy
Life insurance policies are more than just a death benefit. With permanent life insurance, you can also have an income before death, known as “accelerated death benefits,” allowing access to a cash value from the policy for unexpected circumstances.
For example, if your policy has an accelerated death benefit rider, it can help lower healthcare costs if needed. The money for the cash value is money accumulated above the agreed death benefits plus the interest earned over time. However, remember that this amount takes years to collect and has penalties if needed in the early years. Therefore, if you want to draw an income from a permanent life policy at retirement, you need to have purchased it several years before.
4. Replacing Retriment Income
In cases where you are the sole person receiving a retirement income at home, a life insurance policy can help maintain the remuneration or to supplement a Social Security grant for your spouse should you die.
5. Other Considerations
Life insurance policies can cover several costs, so consider which ones are needed by your family. One of the main reasons retirees maintain theirs is to ensure that their family doesn’t lose their homes after their death. Additionally, some are committed to paying for schooling for their children or grandchildren and want to continue doing so even after they are gone. If you have similar responsibilities, your life insurance can continue to meet these needs.
Upon retirement, your life insurance policy can continue working for you and your family. Your financial security, expected financial needs, and estate planning will determine whether you should continue with yours, so think about all the factors above before deciding. Most importantly, if you want to leave a tax-free legacy or charitable donation, make sure to do so through your life insurance policy. If you are unsure how to get the best from your life insurance policy, speak to an experienced insurance adviser today.
How much life insurance do I need in retirement?
In conclusion, you probably still do need life insurance once you retire. However, if you would like to know how much and what type of life insurance you need, we suggest speaking with one of our experienced life insurance advisers about the best ways to protect yourself and your family.
At AplusWealth Inc. we focus on three factors when recommending an insurance policy: 1. Accurate insurance needs assessment, 2. Affordable life insurance rates, 3. A reliable life insurance company.
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