As your retirement draws near, it’s only normal to look at your life insurance coverage and decide if you should make any changes. You might have first purchased life insurance 20, 30 or more years ago – and some policies offer a lot more benefit to the consumer, like living benefits which I’ll explain later in this article.
Life insurance was (still is) a way to safeguard your income during your working years, especially if you had you were raising kids and/or years of future mortgage payments. By the time you reach your 50's and 60's, your children are likely grown, out of the house and your mortgage is at least close to being paid off.
Here’s 5 examples of how life insurance can offer advantages in retirement include:
1. Protection From The Onset of Chronic, Critical or Terminal Illness: Many life insurance policies today allow people to access the death benefit for a chronic or critical illness while you’re alive. Chronic illness is the inability to perform two out of six activities of daily living. Critical illness is having a heart attack, stroke, etc.. Terminal illness is a medical professional diagnosing you as having less than 12 months to live. While you wouldn’t necessarily need to be hospitalized to receive the money, annual certification from a medical professional is required.
2. Access to Cash: If you needed cash you can access the cash value of a permanent life insurance policy for emergencies or even help fund your retirement. In exercising this option, you would pay premiums into the policy during your working years, then leverage it as a source of retirement income (via withdrawals and/or policy loans utilizing the life insurance policy cash value) to benefit your income along with your 401(k) plan, Social Security benefits and other assets. Utilizing this method you could take money from your life insurance policy when your investments are providing lower or negative returns.
3. Financial Support for Your Spouse/Significant Other: Maybe you want to ensure that a surviving spouse or significant other is able to pay expenses after you pass away. These could include many expenses, primarily funeral costs, an existing mortgage or any other type of debt. Accounting for such possibilities can help you better enjoy retirement, knowing that life insurance death benefits offer expense coverage that would prevent the surviving spouse from being put in a difficult financial situation.
4. Wealth Transfer to Your Heirs: Life insurance is one of the most effective methods for creating an orderly succession of assets to future generations and establishing a legacy via charitable bequests. The income-tax-free (possibly estate-tax-free, if properly done) death benefits of life insurance adds to its efficiency as a wealth transfer vehicle.
5. Charitable Giving: Life insurance can be used in several ways to support an individual’s charitable giving strategy as retirement approaches. Finally, the presence of life insurance enables a donor to make a gift of real estate, investments or other forms of property to a charity while continuing to provide a reasonable inheritance to heirs. This is known as a “wealth-replacement” use of life insurance in charitable planning.
Final Thoughts and Preventative Measures
With all the potential benefits life insurance coverage can offer during retirement, it’s important to remember the significant cost benefit of having a policy leading into your retirement years. If you dropped coverage before retirement and then decide years later that you again want a policy, the coverage would certainly be more expensive due to your increased age – sometimes significantly more expensive that makes a new policy affordable. Additionally, any health issues you might have developed during the “no policy” time period could prevent you from being underwritten at the same rate class, or maybe you will not be offered a policy at all due to health reasons.
Maintaining coverage into your retirement years can provide you with priceless peace of mind, due to advantages that include enjoying an alternative source of income, executing tax-advantaged wealth transfers, protecting a surviving spouse or significant other, or receiving relief from the high costs associated with illnesses.
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