At first glance, life insurance may be something that you may be thinking you could eliminate shortly after you change your status from “employee” to “retiree.” If you think of this financial product as something that only has value when you are young and working, you may need to take another look at it. You may find that it has a place in your financial plan after retirement after all.
Life Insurance After Retirement
Do you need life insurance after retirement? There are some good reasons to keep this coverage in place, even after you have stopped collecting a pay cheque. The tax-free funds can be used for any or all of the following:
- Final Expenses
Even the simplest funeral or memorial service, including cremation or burial, will have some cost involved. How will your loved ones cover these expenses? The proceeds from the life insurance policy is extra money set aside which can be used for this purpose.
- Pay Off Debts
Part of settling the estate includes paying off debts. This step must be completed before the beneficiaries can receive their inheritance. Funds from the life insurance policy can be used to pay off credit cards, lines of credit, a mortgage, or other debts.
- Legal Fees and Expenses
The cost of hiring an attorney to settle the estate is another expense that your loved ones will need to deal with after your death. Funds from the insurance policy settlement are a source of ready cash that can be used for this purpose.
- Final Income Tax Return
Your estate will need to file a final income tax return for the year of your death. Some assets may be transferred directly to a spouse. If your spouse pre-deceases you or you are leaving assets to a child or grandchild, your estate may need to pay capital gains tax on investments or real estate. Or if you have registered funds that are not going directly to a spouse or financially dependent child/grandchild a huge tax consequence may be triggered. The funds received from the life insurance policy could be used to pay this expense, leaving more for your beneficiaries.
- Provide Income for Your Beneficiaries
The proceeds from the life insurance policy can be used to support your spouse after you pass away. Pension income often takes a dramatic drop after the passing of one spouse. Life insurance can supplement the drop in income.
Many older adults are in a situation where they are also helping their adult children and their grandchildren financially. If you are supporting an adult child with a disability, you may want to consider keeping coverage in place that can be used to continue that arrangement after your death. Your financial advisor can explain your options.
Don’t Cancel Your Existing Coverage
Don’t cancel an existing life insurance policy until you have discussed your plans with your financial advisor. Even if you decide you don’t want to keep the policy in force, the decision you make can have a profound effect on your beneficiaries. A solution would be to consider asking the beneficiaries for help paying the premiums or transferring ownership of the policy to the beneficiaries outright.
The latter choice means that you would no longer have control over the insurance policy, and the beneficiaries would be able to increase or decrease the level of coverage, or cancel the policy. This is a decision that would require a lot of thought, and you would need to get expert advice before making it.
Are you looking at your life insurance coverage but aren’t sure whether the policy still fits you and your retirement lifestyle? As an experienced financial advisor, I can sit down with you to make sure that you have the right type and level of coverage for your needs. Please contact me for your free, no-obligation consultation.