When planning for retirement, many people feel that those who are over age 50 no longer need life insurance coverage. But regardless of your age, however, it is still important to be prepared financially in case of an unexpected event.
In the past, most retirees were likely to have major expenses such as their mortgage paid off. Today, though, many people not only still have large, ongoing expenses every month, but they also still have others such as children – and grandchildren – depending on them.
In addition, due in large part to the recent market downturn of 2008 and 2009, there are numerous retirees who are still recovering from substantial losses in their retirement portfolios. This means that they are still trying to rebuild lost savings in the hopes of retiring on time – or even retiring at all.
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Why Life Insurance Is Still Needed In Retirement
Even if you’re retired, there are still a number of reasons why it is important to purchase life insurance – or to keep the coverage that you already have, if you already have coverage we highly recommend keeping it. If you cancel and eventually want to get another policy, you will be older and risk that your health has gotten worse and you may not be able to qualify for the traditional medically underwritten policy. There are options such as a no medical exam life insurance policy if you absolutely need coverage, but those will come at a much higher premium rate than the policy you got when you were younger and healthier.
First, should the unexpected occur, it is likely that your loved ones would need to pay final expenses.
Today, the average cost of a funeral runs approximately $10,000. Rather than depleting the funds that they have in savings, or racking up large debts on their credit cards, wouldn’t it be easier to use life insurance proceeds to allow your heirs to quickly and easily pay these costs?
Proceeds from life insurance are also typically used for paying estate taxes. Depending on the size of your estate, as well as your marital situation, it may be possible that you will be hit with a large estate tax bill upon death. In some cases, your estate taxes could up in excess of 50% of your total net worth.
By structuring a life insurance policy – especially through an irrevocable life insurance trust – you will be able to effectively decrease your total taxable estate, and use policy proceeds for the payment of your estate taxes that are due. This, too, is much easier than burdening your heirs with what could essentially be a fairly hefty bill.
One of the biggest reasons to have life insurance in retirement, though, is for income replacement. If you are married or have a significant other, and your spouse or partner will lose a substantial portion of your pension or other income when you pass away, it is absolutely essential that you have life insurance in order to replace this lost income for him or her. Otherwise, their lifestyle will be drastically reduced at that time.
Retirement Savings Solutions
In addition to just the death benefit options, life insurance can also provide retirees with income solutions as well. For example, whole life insurance offers a great way to build up a nice amount of cash value over time on a tax deferred basis.
If you have owned a permanent life insurance policy for any number of years, you may be able to withdraw or borrow from these funds and use them as a retirement income supplement. This can be especially important, as many people may not be able to rely on pension, 401(k), and / or Social Security retirement income alone.
Solutions for Retiring Business Owners
If you’re a retiring business owner, life insurance can provide some ideal solutions for you as well. For example, this financial tool can be part of your business succession plan. For example, should you pass away suddenly, life insurance policy proceeds could be used to pay business expenses during the time that it takes to find a replacement – or to keep the business running while finding a buyer for the company.
Many retirees also opt to donate to a favorite charity as well – and life insurance can provide them with the ability to do that. By making a charity the named beneficiary of your life insurance policy, the organization will be able to receive the face amount of the policy proceeds tax free. Naming a charity as your beneficiary can allow you to donate an amount that is much larger than if you just donated cash directly.
The Bottom Line
While many people feel that they should only carry life insurance if someone is counting on them for income, this is actually not the case. There are countless other reasons for obtaining – and keeping – life insurance coverage. This financial vehicle can be structured in numerous ways, and it can literally be customized to fit with your specific planning needs and goals – regardless of your age or your stage in life.