You may have had life insurance for many years. Most people buy life insurance when they get married or have children because kind of insurance is very important when someone else is counting on your income. But now that you are retired, it is time to assess your need for life insurance.
If your children are grown and living on their own and you and your partner have retired and are living on pensions, Social Security, and investment income, do you still need as much life insurance as you had when you depended on that paycheck every two weeks? Do you still need life insurance at all?
The answers to these questions will depend on your financial situation, what expenses you expect to have over the remainder of your life, funeral and burial costs, and any taxes or other bills that may still need to be paid after your death.
There are several different types of life insurance, and what you had during your working life may or may not still be right for you after you retire. Here are the basic kinds of life insurance:
Term Life Insurance covers you for a set period of time, or “term.” It pays a death benefit only if you die during that term. Term insurance usually pays the largest death benefit per premium dollar paid, and many term policies can be renewed at the end of the term. However, the premiums will go up each time you renew because you are older.
Whole Life Insurance covers you for as long as you live, and you usually pay the same premium for as long as you live. These policies develop cash value and loan value, so if you stop paying the premium, you can continue the policy for a limited period of time for the same face amount or continue the policy until its original maturity date for a reduced face amount. You may also borrow against the policy cash value in the form of a policy loan or surrender the policy for cash.
Endowment Insurance pays a sum or income if you live to a certain age, and if you die before that age, the policy pays a death benefit to your beneficiary.
Universal Life Insurance takes the premiums you pay, minus expense charges, and deposits them into an account that earns interest. This type of policy also develops cash and loan value. If you stop paying premiums, or if premium payments are too low, coverage will continue as long as the cash value is sufficient to cover the deduction made from the account value each month. You may also borrow against the policy for cash value in the form of a policy loan or surrender the policy for cash.
Variable Life Insurance is a type of insurance in which the death benefit and cash value depend upon the performance of the investment accounts you select for allocation of your premiums. This type of policy also develops cash and loan value. If you stop paying premiums, or if premium payments are too low, coverage will continue as long as the cash value is sufficient to cover the deduction made from the account value each month.
While you were working, raising a family, saving for your children’s college, and paying a mortgage, you and your spouse may have each needed enough life insurance to replace your take-home pay for at least two or three years so your family could maintain its lifestyle if you were gone. If most of these obligations are gone, this may be a good time to examine whether you still need the life insurance you currently have.
This isn’t a decision to be made lightly. You should discuss this with your spouse or partner, your children or other beneficiaries, a trusted financial adviser, and your insurance professional.
Always make sure you have enough money to pay for any costs that will be around after you die, such as a funeral, burial, taxes, and any debts. You don’t want to leave these to your loved ones.
Keep in mind that some life insurance policies can be used to help pay medical expenses while you are alive, but this will reduce or eliminate the death benefit.
More information and some good questions to consider are available from the National Association of Insurance Commissioners.
To learn more
CMR & Associates provides independent retirement and insurance advice by reviewing your current plans to improve coverage and reduce cost. Through our proprietary database – The CMR Database® (comprised of some 13,000 brokers and specialists globally) – we maximize access to the retirement and insurance industry for greater options that will translate to better coverage and lower cost. Since 1999, we have saved clients over $120 million.
Please email CMR Associates or call 877-447-4301 or 212-447-4300 for more information.