Do I Still Need Life Insurance in Retirement? Your Questions Answered
Many people easily see the need for life insurance when they have young children still at home, an unpaid mortgage on the house, future college tuition that would need to be paid, or their career is still in full swing. But when you reach retirement age, it’s sometimes wondered if life insurance is still needed. The short answer is . . . YES! But let’s get a little bit more specific as to why this is the case. Check out the answers to the most common questions below:
Do I still need life insurance after I retire?
Just because you have reached retirement age, it doesn’t automatically mean that you are financially set for the years that are still ahead of you. You might have been required to retire early, or you may have had some investments that have gone sour or haven’t performed the way you were hoping and your nest egg has taken a hit. You may have children still at home who depend on you, or you may have an aging parent, or a special needs family member that you provide financial support for.
Let’s face it, it isn’t cheap to die! Final expenses need to be paid, there can be Federal tax, and a significant state inheritance tax that your children or beneficiaries might have to pay. Do you have debts that will have to be paid off? Where will the funds come from to cover all of this? The bottom line is: If you love someone, owe someone, or have anyone who financially depends on you, you still need life insurance. Retirement doesn’t change that.
Do I Still Need the Same Amount of Life Insurance As I Had Before?
Maybe, maybe not. The reason for this is that it all depends on where you stand financially, and what your goals are for this stage of your life. Is your mortgage no longer a debt that needs to be covered? Or does it still exist? Did your investments and savings get built up beautifully over the years? Or did you not quite hit the mark of where you wanted to be? Maybe you want to be able to leave a sizeable inheritance for your children or grandchildren or simply don’t want them to have to sell off parts of the estate to cover taxes, and other debts.
Like we mentioned in the previous question, do you have a spouse or other family member who is dependent on you financially that you would have to ensure that they would be taken care of after you’re gone? We are now living longer than ever before, and our money has to stretch even farther. If you have financial obligations or exposures, then there is still a life insurance need there that you should shield yourself from.
We don’t hear enough about the living benefits of life insurance. These are powerhouse products that have the ability to be built to do many things for us. It is not just a “death benefit”. They can lower your tax liability, offer another savings vehicle with guaranteed growth with a death benefit that can be left to your beneficiary tax free to name a few.
If I Don’t Already Have Life Insurance, Can I Still Buy It In Retirement?
Yes, you can still buy life insurance in retirement. Some carriers will take applications for coverage to quite an advanced age. But waiting until you reach retirement to get life insurance in place is a risk as it is very common that as we age health issues tend to creep up and surprise us. Some health conditions can take the option of life insurance off of the table entirely, and with other conditions you could still get coverage but you might end up paying a little bit more for it because of the increased risk. My best piece of advice: Get the life insurance you need as soon as possible, as premiums are based on your age and health and you will never be younger or healthier than you are now.
What if I No Longer Need My Life Insurance Policy, Should I Just Let It Lapse, Or Cash it out?
Sometimes you might find yourself in the situation where you really do no longer have a need for the life insurance policy that you bought so long ago. Or maybe it’s not necessarily that you no longer have a need for it, but that you have other needs that are more pressing.
Maybe you need cash for medical costs, or to pay for long term care. Maybe the premiums have just gotten too expensive for you to maintain. Before you just stop paying the premiums and let the policy lapse, or tell the insurance company to cash you out, please know that you might have other options!
It’s called a “Life Settlement”, and it’s completely legal, and has been around for quite a while now. In a nut shell, the life settlement market matches up people who have policies that they no longer need with buyers who want to purchase your policy from you as an investment. You’ve spent all those years paying into the policy, it is well worth the time it takes to look into it and see If this is a viable option for you, because if it is, you will likely get more for the policy than you would if you cashed it out, and WAY more than you would if you just let it lapse and lost it altogether.
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