Retirement planning, like all other stages of life planning, requires a reassessment of your goals and plans. Whatever your retirement goals are, having a solid financial plan will help you stay on track. If you are considering retirement or have already retired, you may be wondering if you still need life insurance.
In retirement, you can purchase life insurance to cover funeral expenses, pay off outstanding debts and estate taxes, make charitable contributions, or leave an inheritance. If you have already achieved all of these goals, you may not need to purchase life insurance. In this article, we will look at how life insurance can be beneficial to your retirement plan, as well as other relevant factors.
Types of Life Insurance in Retirement
Life insurance is a well-known financial tool to secure you against future income and other losses. Similar to any insurance product, there are various kinds of life insurance in retirement which are;
Term life insurance
This policy also known as temporary life insurance offers coverage for a certain time frame, usually between 10 to 30 years. In addition, the coverage will lapse if you outlive the term or cease making premium payments.
Whole life insurance
This kind of permanent life insurance has no expiration date as long as you continue to pay your premiums. This policy is beneficial for long-life requirements and is the main factor of estate planning. Cash value is another benefit of whole life insurance that can be accessed at any time during your life.
Universal life insurance
Universal life insurance is another type of permanent life insurance that lets you change the amount you pay in premiums each year. In addition, numerous whole life insurance policies have a constant premium.
Burial insurance
Burial insurance also referred to as final expense or funeral insurance is a small whole-life insurance policy intended to pay for your funeral expenses. Generally, these policies only provide coverage for $5,000 to $35,000. Furthermore, there are burial life insurance policies that do not require a medical exam.
How Life Insurance Is Important in Retirement
Many households spend all of their income before retirement to support their lifestyle and cover expenses such as childcare. When two people work, their joint income frequently specifies the family’s standard of living. This is also correct if one partner works while the other does housework and childcare.
However, if one or both of them die, the family may experience financial difficulties. It’s possible that you won’t need life insurance to achieve these objectives once you retire and your children grow up. However, there are other circumstances in which it makes sense.
When You Need Life Insurance in Retirement
Here are some reasons for needing life insurance for retirement;
Replacement of pensions
If your pension provides a sizable portion of your retirement income, you may require life insurance in case your spouse or another dependent is unable to receive your pension following your passing.
Preparation of an estate
Wealthy retirees occasionally use life insurance to plan their estates. Rather than selling assets at a loss, life insurance death benefits can be used to cover estate taxes.
Coverage against market declines
If you are concerned about how a market crash will affect your investments, cash value life insurance can provide a safety net if the value of your portfolio falls so low that it affects your lifestyle and reduces your income stream.
Pay for unforeseen costs
If you need to borrow against your cash value policy or take out a loan against it, a cash value policy can help you cover unforeseen costs. Some choose to purchase a small life insurance policy to cover funeral costs because the benefits are typically paid to heirs right away.
Assign assets to each heir in equal shares
You could use your life insurance death benefit to equalize the gifts you want to leave for child number three if you want to give your house to child number two and your stock portfolio to child number one.
When You Don’t Need Life Insurance in Retirement
Upon approaching retirement, if you do not currently have life insurance, consider the following reasons before acquiring it:
Elevated premiums
The payout of life insurance occurs upon death and the likelihood of dying increases with age. As a result, insurance companies raise their rates as you get older, and premiums in your sixties can be extremely high. Spending the money on premiums may be a better option.
Cash value expense
Simple-term life insurance has fixed premiums and a predetermined death benefit over a specific number of years. However, cash value policies like whole life or variable life have more parts than term policies insurance, and investment portfolios, and they may also have higher commissions and fees, especially in the initial years.
Transfer of assets to beneficiaries
You can use your will or trust to provide income protection when transferring ownership of these assets to another person or people. This can occur if your income is derived from real estate, bank savings accounts, IRAs, and retirement plans containing stocks, bonds, and mutual funds, or if you own property.
Final Thought
Remember that life insurance in retirement can be costly unless you use current policies. Depending on your sources of income and total estate value, life insurance may provide compelling financial flexibility in either scenario. Furthermore, you can consult with a financial advisor about your options if you currently have policies or are considering purchasing a new one to provide additional coverage for your retirement income.