Life Insurance for Retirees, Do You Need It?
Will I need life insurance after retirement? This is probably the question you have been asking yourself, especially if you are still far from retiring. Life might be how you want it now, but a lot of things are bound to change after retirement. Perhaps you are approaching retirement and you are considering taking out a life insurance policy. Where do you start and what will you need? What sets it apart from a policy you would have bought before retirement?
Whole life insurance for retirees does not make sense for a lot of people, it has its perks and might be more useful than you thought. People don’t all retire at the same time, some people choose to invest and retire early while others opt to work until they hit their retirement age. There are also those who choose to work post-retirement. But just like you normally would, you need to consider a few things when shopping for a life insurance policy, like the length and cost of the policy as well as the cash value if it is a permanent policy.
You might also want to decide why you are buying life insurance. Well, at retirement your children probably don’t financially depend on you and you probably don’t have an uncompleted mortgage right? But that does not rule out the need for life insurance for retirees.
Why It is Important
For most, if not all families, household income is often used to support their way of life. Post-retirement, that income does not stream in as it used to during employment, and whether you already own a life insurance policy or you are considering buying one, here are reasons why it is important.
Sustaining the Standard of Living for Your Loved Ones
When you are the breadwinner of your family, you want to ensure that their lifestyle remains the same even in your absence. You don’t want to leave your loved ones with a financial burden too heavy for them to carry, and this is one of the reasons why life insurance is important in retirement.
Perhaps both you and your spouse contribute financially to maintain your standard of living. When one of you dies, this affects the finances as well as the lifestyle. The surviving spouse and children might be forced to downgrade since the income has reduced. Even worse, your family might have to endure sleepless nights from your creditors when you leave any outstanding loans.
If you have amassed considerable property and business before retirement, then you should highly consider taking out a life insurance policy. Life insurance is an important part of protecting your estates especially when you die. When you die leaving your property behind, there is a risk of forced sale due to estate taxes. No one wants to work hard for a family legacy but instead have everything they worked for sold off leaving behind a financially struggling family.
Your loved ones will be left struggling to pay off the estate taxes in order to retain the property. This can be frustrating especially if your surviving spouse does not have a stable source of income. And the outcome would be the loss of this property and business.
So, you probably want your property to stay secure even after you die, this is why life insurance is important. Maybe your estate includes shares of your business. Your life insurance policy will help fund any buy-sell agreement put in place for this business. As such, there are no assets risked during the business transition after your death.
At the time of your retirement, you might still have an uncompleted mortgage payment. And since you are probably not working after retirement, you want to be able to pay off the remaining mortgage without risking any valuable asset you own.
When you take out a mortgage, a collateral assignment is part of the arrangement. This is an assignment with stipulations appointing the lending institution as the primary beneficiary of the policy such that the death benefit is used as collateral for the loan. So if you die before having completed your mortgage, your lender first receives part of the death benefit enough to pay off the remaining amount before the rest is paid out to your surviving spouse and children.
If you die and leave a pending mortgage without a life insurance policy in place, your lenders might be forced to sell off some of your assets to pay off the remaining amount. And in some cases, some lenders take more than they need to fully cover the remaining mortgage amount, which might leave your family straining financially. So by taking out a life insurance policy for mortgage protection, you are not only ensuring that the mortgage is fully paid in your absence but also protecting your loved ones.
Transferring Wealth to Your Heirs
Transferring wealth to heirs is one of the biggest causes of disputes between families. When people are left with property and assets to divide between themselves, this is a delicate situation that might stir up a serious fight between the individuals especially when all assets are not equal. To that end, life insurance is used for asset equalization during transfer to the surviving family members.
If you have a massive established business and other properties like the family home, land, cars, and so on life insurance would be important. You don’t want your loved ones to be left fighting over who takes over what or how to equally divide the property and assets among themselves.
For instance, if you have two surviving children and left a thriving business and a life insurance policy with a payout equally the same to the value of the business, one of them would inherit the business while the other benefits from the death benefit from the life insurance policy. Hence, this would help avoid any dispute as to who between the two inherits the business or how they divide the shares between themselves.
How Long You Need Life Insurance After Retirement
When the question of whether or not you need life insurance after retirement is predominant, you also need to know for how long you will need it.
You might be financially stable at your retirement, but if you own other assets, then you need to have a plan to sustain them in the future. Personal aspects such as health and lifestyle will possibly affect your investments and savings, changing the cause of your plans for retirement. Even after your death in retirement, your surviving partner and children will need a form of financial support if you were their breadwinner.
There are other scenarios that will also affect your finances in retirement, which in turn affect the decision on the amount and length of your policy. For instance, you have young children who would have to rely on your finances indefinitely. This calls for a long life insurance policy. Or perhaps you have 15 years left on your mortgage, then you will also have to get a long-term policy.
On the other hand, if you had cleared all debt, all your kids are financially independent, and your spouse can financially support themselves in your absence, then you might need to buy a shorter policy. So, evaluate your situation, debts, financial obligations, your property, and so on to help determine how long you will need life insurance after retirement.
Do You Have an Additional Source of Income?
Will you need to replace any income after you retire? Some people still need to work after retirement in order to sustain their lifestyle, but others don’t need to lift a finger, they already have a solid financial plan in place to sustain them throughout their retirement. In the first scenario, you might need a life insurance policy to replace your income if you die leaving behind loved ones who are financially dependent on you.
Maybe you have retirement savings and have Social Security as well, you might not need life insurance if you have no financial obligations or an income that needs replacement.
All these are factors you should use to determine how much life insurance you will need post-retirement if there is a need for a policy. The amount will also be determined by your ability to pay for it. So, if you only have enough to sustain yourself and your family, then don’t jump into buying a policy that will use up those finances.
But if you can afford it and have a source of income that enables you to pay for the premiums, and above all, you actually need a life insurance policy, then it would be necessary to purchase one.
Which Life Insurance is the Best for Retirees?
There are both permanent and temporary types of life insurance policies that retirees can consider. Each of the life insurance policies has different stipulations, and every individual’s situation is different. As such, the need for a life insurance policy varies from one person to the other, and the decision is based on both the kind of product and the needs of the policyholder. That said, below are life insurance policies you could consider as a retiree.
Term Life Insurance
Term life is the temporary life insurance policy that runs for a specific period of time which is usually most common between 5 to 30 years. However, you might also have a term life insurance policy that lasts longer than 30 years, it all depends on your insurer, so this period is not limited to that.
Term life insurance is mostly characterized by lower premiums, flexibility, renewable, and a guaranteed death payment. On the downside, term life insurance does not accumulate a cash value like whole life insurance policies. This means that unlike whole life where there is a death benefit and the cash value component, term life insurance only offers a death benefit.
For anyone retiring at the retirement age which is normally between 65 years to 67 years, and is considering taking out a policy, then term life insurance would make the most sense.
Not to say that it is the best for all retirees because every individual has their own needs, but it is the most applicable in most cases. What are your financial obligations at retirement? Can you afford to pay for life insurance at retirement? Do you have loved ones who depend on your financial ability even at retirement?
Whole Life Insurance
Whole life insurance, on the other hand, is a policy structured to provide coverage until you die. So, even if you took out a whole life insurance policy at the age of 20 years, you will still have coverage at the age of 76 years when you are already retired.
Whole life insurance, apart from a death benefit, also accumulates a cash value component. This cash value component could be used as an income source after retirement and the large death benefit payout could be used to sustain your loved ones once you die of offset loans, and secure your property.
Whole life insurance has very expensive premiums so before buying such a policy at retirement, ensure that you have a reliable source of income to pay for them and ensure that it stays in force.
With the assortment of life insurance options to choose from, it is important to note that health is a huge consideration before qualifying for any life insurance package. Especially at retirement where your health and age have declined, you might not get the best offers, but there is always a policy for you. If you have a pre-existing health condition that will limit the amount of coverage you get, consider having a no-exam policy.
Retirement can be as hard or as easy as you make it to be. Whether you are retiring in a year or in 5 years, you need to plan well for your retirement. And in most cases, life insurance is often important for any retirement plan. You could have an expert help you go through your situation to ascertain whether you need life insurance after retirement or not. If you have already bought a policy when younger, does it align with your current needs and situation or do you need to make any changes to it or take out another one? If you had not bought any policy before retirement, how will buying one make life better for you, and which of the different products available is the most suitable?