Keep Your Life Insurance When You Retire
Do you need a life insurance policy in retirement?
Some might say no. After all, the kids are grown, and the need to financially insulate the household against catastrophe has somewhat passed.
But if you're thinking about dropping your coverage for either of those reasons, you may also want to consider some excellent reasons to retain, obtain, or convert a life insurance policy after you retire. Read on to learn more.
Could you make use of your policy's cash value?
If you have a whole life policy, you might want to utilize that cash in response to certain retirement needs. Long-term care, for example: you could explore converting the cash in your whole life policy into a new policy with a long-term care rider, which might even be doable without tax consequences. If you have income needs, some insurers may let you surrender a whole life policy you have held for some years and arrange an income contract with the cash value. You can pull out the cash, tax free, as long as the amount withdrawn is less than the amount paid into the policy. Remember, though, withdrawing (or taking a loan against) a policy's cash value naturally reduces the policy's death benefit.1
Do you receive a "single life" pension?
Maybe a pension-like income comes your way each month or quarter, from a former employer or through a private income contract with an insurer. If you are married and there is no joint-and-survivor option on your pension, that income stream will dry up if you die before your spouse dies. If you pass away early in your retirement, this could present your spouse with a serious financial dilemma. If your spouse risks finding themselves in such a situation, think about trying to find a life insurance policy with a monthly premium equivalent to the difference in the amount of income your household would get from a joint-and-survivor pension as opposed to a single life pension.2
Will your estate be taxed?
Should the value of your estate end up surpassing federal or state estate tax thresholds, then life insurance proceeds may help to pay the resulting taxes and help your heirs avoid liquidating some assets.
Are you carrying a mortgage?
If you have refinanced your home or borrowed to buy a home, a life insurance payout could potentially relieve your heirs from shouldering some or all that debt if you die with the mortgage still outstanding.2
Do you have burial insurance?
The death benefit of your life insurance policy could partly or fully pay for the costs linked to your funeral or memorial service. In fact, some people buy small life insurance policies later in life – in preparation for this need.
Keeping your permanent life policy may allow you to address these issues
Alternately, you may seek to renew or upgrade your existing term coverage. Consult an insurance professional you know and trust for insight.
1. Investopedia.com, 2021
2. Investopedia.com, 2021
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