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Do I need life insurance once I retire? Just because you’re retired doesn’t necessarily mean you’re financially sound.
Think of all the different scenarios that may still be applicable: You may have been required to retire early; you may have had investments that have gone sour and haven’t had time to rebuild your nest egg. Additionally, there may be a need to cover final expenses, you may have children still at home who depend on the them, or you may have a family member like an aging parent or special-needs sibling that you provide financial support for.
The bottom line is this: If you owe someone, love someone, or someone depends on on you financially, you need life insurance. And just because you’re retired or old doesn’t mean those three things go away.
Do I need the same amount of life insurance coverage as I did before? If you bought the life insurance to replace income and have built up their investments, maybe not.
Then again, if you have built up their investments over the years, there may be some state or federal inheritance tax that will have to be paid upon their death. And even if there is no federal tax, there may still be significant state inheritance tax. There are also things like probate costs, administration costs; there might be final debt or a mortgage on house, too. So as long as there is some type of financial exposure, you need life insurance to match up with that.
If I don’t have one, is it still possible to buy a policy in retirement? Absolutely. Just because you’re old or older doesn’t mean you’re uninsurable.
I just got a call from someone doing planning for the family patriarch who’s 85 years old. They realized that right now, the estate is worth more than the combined amount of federal exemption and that there will be tax to pay. That’s where life insurance comes in, at less than a dollar for each dollar of tax.
Another reason to have the coverage is if someone has taken 100% pay-out on their pension, with no survivorship provision. If that person dies, no money gets paid out to the surviving spouse. This is more common than you think. Nor is it unusual to hear that someone remarries and forgets to change the pension beneficiary. Life insurance can ensure that the spouse is taken care of.
What else should I know about having life insurance in retirement? People don’t often talk about the living benefits of life insurance.
Let’s say you no longer need the death benefit, but are living with a lingering, terminal illness and may not have sufficient cash to pay medical expenses. The accelerated death benefit provision means you can go to the insurance company and pull down money from the policy to absorb the costs of that illness and avoid bankruptcy.
A permanent life insurance policy is also a place to put money aside that gives you a better rate of return than a low pay-out CD or putting money in a safely deposit box. It’s a way to have some safe money invested at no risk—it’s just there for when you need it.
Marvin H. Feldman, CLU, ChFC, RFC, is president of the Feldman Financial Group in Palm Harbor, Fla., and president and CEO of Life Happens. He is a 41-year Million Dollar Round Table member and was the 2002 president. He is a 33-year member of the MDRT Top of the Table and a past Top of the Table chairman. He also is the recipient of the 2011 John Newton Russell award, the highest honor bestowed on an individual by the insurance industry.