If you follow the common wisdom that life insurance protects your loved ones from losing your income, it may seem like the right time to cancel your policy when you retire. You might even consider converting it into its cash value. Before you decide to get rid of your life insurance when you retire, you should think of it as more than just a means of replacing your income.
Do you have a lot of debt?
Many people look at life insurance as a way to replace their income upon their death so that their loved ones are taken care of. It can also be used to pay off debts incurred by the insured.
More and more people are carrying debt into their golden years, according to the National Council on Aging. As of 2016, 60% of households led by individuals over the age of 65 had debt. This is up from 41.5% in 1992 and 51.9% in 2010. The median level of debt carried by these households was $31,300. One may feel that this type of debt is a burden to carry alone when they are no longer working. Dying before that debt is paid off can create financial hardship for your loved ones as well.
The debts will be paid under your name through your estate upon your death. If you have any loans or debts with a co-signer, the co-signer will be left to pay them off alone. This means that life insurance can ensure that your family or co-signers will not face financial damage due to your death.
Do you want to leave your loved ones in a good financial position?
Finding the best way to leave money for your heirs can be challenging. But with life insurance, you can arrange for your heirs to receive a tax-free death benefit upon your passing. Generally, the money from life insurance is not subject to probate laws. Probate is the legal process for settling who gets what from your estate.
Maculo describes life insurance as a license to spend as you wish or need during your lifetime. You don’t have to save every penny for your loved ones to receive when you pass away. You can use your money to pay your bills and living expenses. “If you want to be 100% sure to leave money for your children, the cleanest way to do that is through life insurance,” she indicates. “Instead of being frugal during retirement and worrying about spending too much, you can relax.”
Maculo points out that “life insurance is a unilateral contract. Once the policy is in place, as long as you pay your premiums, the insurance company cannot change it.” This means that the death benefit is a way to ensure that the money you wish to go to your loved ones upon your death does exactly that. Other money you plan to leave them may end up being distributed in a way you didn’t intend.
Do you have a permanent policy now?
The death benefit is the primary reason for having life insurance. However, permanent life insurance can also provide income to the insured individual before death.
For example, some permanent policies offer a “Accelerated Death Benefit.” This allows the insured person to access the policy’s benefits under certain circumstances, such as being diagnosed with a chronic illness, needing extreme medical care, or requiring assisted living care. Having a policy with an accelerated death benefit rider can help reduce long-term care costs and other healthcare expenses.
Permanence in life insurance carries a cash value that you may be able to access. In short, the cash value is the amount of money you have paid into the policy above the amount that will provide you with the agreed death benefit, plus interest. This cash value can be another source of income you can tap into when you retire if you need it.
Note:
Cash value accumulates over time. You cannot access it in the early years of owning the policy because there are penalties for withdrawing it. If you want to obtain a permanent policy that you can benefit from when you retire, you should purchase that policy well before your retirement.
Do you want to replace your retirement income?
Choosing to carry life insurance when you retire may also depend on your financial situation. For example, if you expect to receive a pension or retirement income that is solely yours, life insurance can maintain that income for your spouse if you pass away first. In the same context, life insurance may be needed for the surviving spouse to offset Social Security. This is particularly important if you die before your spouse reaches the eligibility age for Social Security payments.
Other factors to consider
Consider any major expenses or events you might want life insurance to cover. For example, if you have a mortgage when you retire, you might decide to keep your life insurance. You can do this so that your loved ones are not at risk of losing their home after your passing. They can continue to pay for the home even after you are gone using the proceeds from your policy.
Additionally, if you want to ensure that your children’s or grandchildren’s education expenses are paid for even if you are not around, life insurance is one way to do that.
Conclusion
When you retire, you may not be earning income from a job, but that does not mean your need for life insurance ends. Whether you decide to keep life insurance after retirement or let it go depends on your financial security. Not only that, but it also depends on whether you want to leave your loved ones a financial amount upon your death. You should also consider the income needs you anticipate when you retire.
Thinking about these factors before retirement can help you make the best decision regarding your life insurance needs when you are not working every day.
Source: https://www.thebalancemoney.com/i-retired-do-i-still-need-life-insurance-2388602
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