So you're retired...the kids are self-sufficient (finally!) and the mortgage is paid off (Yippee!). There's no need for life insurance, right? Well it depends...on your financial situation.
Or perhaps you are among the crowd that was sold a whole life policy years ago by some high-pressured insurance agent that told you it was a good deal and you just can't come to grips with letting it go now. No worries if you just said "that's me" in your head (it's actually a pretty common issue I see among my clients).
So let's start with these 3 questions:
1.) Why did you buy the thing in the first place?
2.) Is that need or desire still there?
3.) Will someone experience a financial loss when you die?
In most cases, you're right...retirees don't need life insurance because you bought the thing to make sure your kiddos are financially secure in the event that you pass away early. However, I've outlined 5 scenarios where hanging onto that life insurance policy or even considering buying a new policy might make some sense:
#1: You still owe lots of debt
We all know it's best to resolve our debts before retirement so the credit card company isn't eating up your precious income however sometimes life doesn't work out that way. If that's the case, it's probably wise to hang onto that policy.
#2: You have a disabled or non-adult child
If you have a disabled child or even perhaps still a non-adult child that is dependent on you. Purchasing life insurance should be considered to help pay for their ongoing support.
#3: You will lose a substantial portion of the family income when one spouse dies
If a large part of your retirement income is furnished by your pension, you might need life insurance if your spouse or another dependent cannot receive your pension after your death. This is of course assuming that you don't leave them enough other financial assets or sources of income.
#4: You want to leave a charitable legacy
So full disclosure here, if you choose to purchase life insurance for the purpose of leaving a charitable legacy...you are going to need the more costly cash value policy (which I'm not a huge fan of). However, the reason why many charities are urging their donors to consider the gift of life insurance is because they get an increased amount when you pass: the death benefit. This strategy gets complicated so I highly recommend you consult a CPA, estate attorney, and a fee-only CERTIFIED FINANCIAL PLANNER™ practitioner.
#5: You don't want your heirs selling the family business/farm for your funeral expenses
Life insurance proceeds can serve as a valuable immediate source of cash for your heirs to pay funeral expenses and other debts without having to hasty sell illiquid assets, such as the family business, farm, or depreciated stocks at inopportune time, often at a fraction of their true value.
As I said before, in most cases retirees don't need life insurance (don't tell your insurance agent I said that). I understand that it can be emotionally difficult to let your policy lapse...trust me, I see it all the time. However, remember the ultimate reason why you purchased it in the first place...to give you peace of mind and protect your loved ones. For most people, if you have sufficient resources to take care of your retirement needs and your children are on their own, you don't need it anymore. Letting it go will eliminate an unnecessary retirement expense.
In all of these situations, it's important to consult the professionals: your CPA, estate planning attorney, and a fee-only CERTIFIED FINANCIAL PLANNER™ professional. If you're looking for an unbiased professional opinion from a fiduciary that does not sell life insurance or make a commission if you purchase a policy, give me a call at (785) 256-9150 or schedule your FREE initial consultation here.
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About the Author:
Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.