Q & A: Should I keep my life insurance during retirement?
Q & A: Should I keep my life insurance during retirement?
By: Stacey Nickens
September is National Life Insurance Awareness Month. You might wonder if you should keep your life insurance policy in retirement. Your kids are likely out of the house, and you may no longer feel the need to insulate against the loss of a breadwinner.
However, there are a number of reasons to keep, acquire, or convert a life insurance policy in retirement. Think through some of the points below before making your final decision. As always, I encourage you to reach out and discuss your specific situation with our knowledgeable employees.
You could make use of your policy’s cash value. If you have a whole life policy, you could consider using your policy’s cash value for extended care or other retirement needs. You can convert the cash in your whole life policy into a new policy with an extended care rider. This conversion may even be feasible without facing tax consequences. You could also surrender your whole life policy for an income contract with the cash value. As long as you withdraw an amount less than the amount paid into the policy, you can retrieve the money without a tax bill. This strategy allows you to access extra income in retirement should you need it. However, keep in mind that withdrawing money will reduce the policy’s death benefit.
If you rely on a “single life” pension, a life insurance policy could protect your family. If you receive a pension with no joint-and-survivor options, that pension money will not be available to your spouse if you pass away before them. This could leave your spouse in a difficult financial situation. To protect against this, you could obtain a life insurance policy with a premium that would account for the income deficit.
A life insurance policy could help your heirs if they will be responsible for an estate tax or a mortgage. Review whether the value of your estate will exceed federal or state estate tax thresholds. If so, proceeds from a life insurance policy could help your heirs pay these taxes. Without these proceeds, your heirs may be forced to liquidate your assets in order to afford the tax bill. Similarly, if you carry a mortgage on your house, proceeds from a life insurance policy could help your heirs pay some or all of your debt after your passing.
A life insurance policy could help your family with funeral costs. The death benefit on a life insurance policy could help your family shoulder the costs of a funeral or memorial service.
