Keep Your Life Insurance When You Retire
Some good reasons to retain it.
Do you need a life insurance policy in retirement? One school of thought says no. The kids are grown, and the need to financially insulate the household against the loss of a breadwinner has passed.
If you are thinking about dropping your coverage for either or both of those reasons, you may also want to consider the excellent reasons to retain, obtain, or convert a life insurance policy after you retire. It may be the best decision once you take these factors into account.
Could you make use of your policy’s cash value? If you have a whole life policy, you might want to utilize that cash in response to certain retirement needs. Long-term care, for example: you could explore converting the cash in your whole life policy into a new policy with a long-term care rider that may be available for an additional premium, which might even be doable without tax consequences. If you have income needs, many insurers will let you surrender a whole life policy you have held for some years and purchase an annuity with the cash value to provide additional income. You can pull out the cash, tax-free, as long as the amount withdrawn is less than the amount paid into the policy. Remember, though, that withdrawing (or taking a loan against) a policy’s cash value naturally reduces the policy’s death benefit.1
Do you receive a “single life” pension? Maybe a pension-like income comes your way each month or quarter, from a former employer or through an annuity contract with an insurer. If you are married and there is no joint-and-survivor option on your pension, that income stream will dry up if you die before your spouse dies. If you pass away early in your retirement, this could present your spouse with a serious financial dilemma. If your spouse risks finding themselves in such a situation, you might want to consider trying to find a life insurance policy with a monthly premium equivalent to the difference in the amount of income your household would get from a joint-and-survivor pension as opposed to a single life pension.2
Will your estate be taxed? Should the value of your estate end up surpassing federal or state estate tax thresholds, then life insurance proceeds may help to pay the resulting taxes and help your heirs avoid liquidating some assets.
Are you carrying a mortgage? If you have refinanced your home or borrowed to buy a home, a life insurance payout could potentially relieve your heirs from shouldering some or all of that debt if you die with the mortgage still outstanding.2
Do you have burial insurance? The death benefit of your life insurance policy could partly or fully pay for the costs linked to your funeral or memorial service. In fact, some people buy small life insurance policies later in life in preparation for this need.2
Keeping your permanent life policy may allow you to address these issues. Alternately, you may seek to renew or upgrade your existing coverage. Consult an insurance professional you know and trust for insight.
Life insurance policies are contracts between you and an insurance company and are subject to medical underwriting, and in some cases, financial underwriting. Insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer. If properly structured, proceeds from life insurance are generally income tax free. Life insurance agents do not give legal or tax advice.
Charisse Mackenzie may be reached at 480-339-7103 or firstname.lastname@example.org
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, -and should not be relied upon as such. All indices are unmanaged and are not illustrative of any investment.
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1 – forbes.com/sites/forbesfinancecouncil/2018/03/06/using-life-insurance-for-retirement-purposes/ [3/6/18]
2 – nasdaq.com/article/4-reasons-to-carry-life-insurance-in-retirement-cm946820 [4/12/18]