When you near retirement age you will probably wonder how much, if any, life insurance you should have. Usually when you are working and there are financial obligations such as a mortgage, and possibly college funding, you have a need for higher levels of insurance during that time. Once approaching retirement, one would hope not to have to worry about replacing a lost income; therefore, the need for life insurance is non-existent. However, that might not always be the case.
In most instances, there are two main uses for life insurance during retirement; to replace a lost income or to pay estate tax upon a death. When it comes to estate planning, life insurance is often used to pay estate taxes rather than forcing heirs to liquidate other assets. To determine whether insurance during retirement would be necessary, you should ask yourself, “Will someone suffer financially if I die?” It could be a spouse, significant other or even a child that you would need to consider. If the answer is yes, then you need to protect your assets and/or income flow. If no, then life insurance may not be necessary. Once you figure out you DO need it, then it’s important to consider HOW MUCH you need.
For retirees who receive a pension, the highest benefit is generally paid for a “life only” or single life payout. While this provides a higher retirement income than a joint-life annuity, the benefit stops upon your death. In this case, life insurance would be purchased to replace the lost pension benefit for the surviving spouse or other dependents.
In the case of Social Security, if one spouse dies, the surviving spouse is entitled to the higher Social Security of the two. In other words, one check stops coming in. This loss of income may be a burden for the survivor. Purchasing life insurance on each spouse will provide death protection to replace the lost Social Security income.
Finally, when it comes to estate planning, you must keep in mind your current state laws and that they could be subject to change, depending upon what direction Congress takes with the estate tax, you could find your estate exposed to higher taxes. Also, in some cases where your estate is made up of illiquid assets such as a business or real estate, you would not want to have to put your heirs in a position to having to sell these assets. This is where life insurance can provide much needed liquidity.
As for types of life insurance to buy, the choices can be confusing. Since life insurance needs in retirement are usually permanent, consider policies such as Whole life, Variable life, Universal life or Second to die (insures two and payable after the death of the second) to name a few. There are other permanent life insurance policies you may want consider as well.
You need to carefully evaluate your needs and the cost for protecting those needs. Have someone who deals with financial planning to run the numbers. Only then can you make the right decision about whether life insurance in retirement is necessary for you.
Here at Donald J. Medeiros Insurance Agency our goal is to try to help our viewers by outlining potential exposures and suggest solutions for all insurance needs. By no means can we address a viewers’ specific concerns in every incident. So, we strongly advise to check with an life insurance representative or financial planner to address your specific needs. However, you can also contact us for we have a financial licensed representative, Bill Raus, here at our office.