Do I Still Need Life Insurance Once I Retire? Your Questions Answered
Do you still need life insurance after you retire? Going into retirement doesn't necessarily mean that you are financially sound. Read this blog post for more answers to your questions regarding life insurance after retirement.
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 you, 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 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 your investments, maybe not.
Then again, if you have built up your investments over the years, there may be some state or federal inheritance tax that will have to be paid upon your 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 safety deposit box. It’s a way to have some safe money invested at no risk—it’s just there for when you need it.
SOURCE: Feldman, M. (9 January 2019) "Do I Still Need Life Insurance Once I Retire? Your Questions Answered" (Web Blog Post). Retrieved from https://lifehappens.org/blog/do-i-still-need-life-insurance-once-i-retire-your-questions-answered/
Wealthy vs Financial Fit. Here’s the Difference and Why It Matters
What is the difference between being wealthy and financially fit? Someone could be wealthy without being "financially fit". Read this blog post from Life Happens to learn more about the difference.
People can be wealthy without being financially fit, meaning they can have a lot of assets or money tied up in assets, but those assets aren’t “liquid.” Let me explain. Say you have a house that has escalated in value in the real estate market. You may have this large asset, but that doesn’t necessarily mean you’re financially comfortable from an income standpoint. You aren’t able to tap into that “wealth” to pay for your day-to-day expenses.
Considering Risk
The overall goal when I sit down with someone, or perhaps a couple, is to determine their wants and needs, and then give them a plan that helps them grow their assets, while achieving their income goals.
But one thing many people fail to look at is the risk during this growth period. Let’s say you’re married, and again your major asset is your home, perhaps even with a large mortgage. What if something were to happen to either one of you? Would you still be able to pay the mortgage and retain the house? Or would you need to sell your largest asset just to pay day-to-day living expenses?
That’s where life insurance comes in as a foundational piece to financial fitness. It addresses the issue of someone dying too soon—that’s a risk factor you don’t want to leave chance. And the truth is, it’s an affordable solution for almost everyone. A healthy 30-year-old can get a 20-year $250,000 level term life insurance policy for about $13 a month. Most of us can afford to find that kind of money in our budget.
What Do Romantic Partners Want?
Life Happens did the survey, “What Do Romantic Partners Want?” and we discovered some great news for most of us—people prefer a partner who is financially fit (64%) over someone who is wealthy (16%). And we explored a whole host of factors, from looks to money to relationships. And I think it’s only natural that when people are dating, all the factors that we explored in the survey come into play.
It’s when things become serious and you’re looking to settle down that you have to start asking some of the tougher questions, questions that may make you feel uncomfortable. For example, does the other person have a lot of debt or other financial obligations?
Remember, if you marry and sign on the dotted line, you become responsible for each other’s debt. I’ve seen divorces happen where one partner was racking up a huge amount of credit card debt without the other one knowing, and then in the divorce proceedings the other partner finds out that they are responsible for half that debt.
In the end, it comes down to being financially aware, asking the appropriate questions, even if they are uncomfortable ones. You need to go into a long-term relationship with your eyes and ears wide open.
SOURCE: Feldman, M. (5 June 2018) "Wealthy vs Financial Fit. Here’s the Difference and Why It Matters" (Web Blog Post). Retrieved from https://lifehappens.org/blog/wealthy-vs-financial-fit-heres-the-difference-and-why-it-matters/