Do I Still Need Life Insurance?
You are in or near retirement, all your debts are paid, do you really need that life insurance policy anymore? You could be just flushing money down the toilet, or at least to the insurance carrier or someone else that you don’t care to get the benefit. The decision to cancel or terminate a life insurance policy once you are in or near retirement may or may not be a good idea. It is a decision that many people may argue that you should always have life insurance, and you will also hear from people that you should never have life insurance. In fact, many people have a hard time getting their head around buying life insurance in the first place. Life insurance was meant to be there for the unexpected things to come up.
Before you go ahead and cancel, I have listed out some things to consider before coming up with the conclusion that it is a good idea to terminate or to keep your life insurance policy. Keep in mind as we go through some of the questions since you already have life insurance, you should really think long and clear before terminating the policy. The older you are, the more expensive it is to get new a life insurance policy. It might even be impossible to get a new one due to health reasons. Make sure to do a thorough analysis of your retirement and the what-if scenarios so that you know it is a good idea to terminate the policy because it will be much harder to get a new one. Let’s go through some things to consider before you terminate your policy.
What if you pass away, is your spouse covered with enough assets and income?
When it comes to retirement, you need to understand what the income looks likes for the surviving spouse. We know that when one spouse passes away, we will automatically lose the smaller of the two Social Security checks that are coming in. Don’t forget to look at your pension or annuity income if you have it. As a Baby Boomer in retirement, you may tend to forget about how you set your pension or annuity income up. Will it pay out 0%, 50%, 75%, or 100% to the surviving spouse? If you have laid out your income plan in retirement, you and your spouse will be able to determine whether or not the surviving spouse can live on the income that is left over and whatever assets that are left over as well. If the surviving spouse has enough assets as well as enough income, then there is a possibility you may not need life insurance anymore.
Do you want to leave a legacy behind?
There are some Baby Boomers that want to leave as much to their children or grandchildren as possible. Some want to make sure something is left to loved ones or even charity as a possibility. If this is the case, you may want to keep your policy intact. You do have to decide for yourself whether or not the money you are using to pay for the policy is sacrificing something else for you in retirement and what that might be. Generally if you are just squeaking by or aren’t able to have a small amount of savings each month, holding on to the life insurance policy may not be a good idea because you may end up just giving up on it in the future anyway if you have to look for cost savings in the future.
Do You Have Estate Tax Issues?
Estate taxes are different for each state, but not federally. For example, if you live in Minnesota, you can exempt up to $1.8 million for 2017 and $2 million for 2018. In the state of Florida, there aren’t any state estate taxes. Check your local state estate taxes to find out how you may be affected. If you are above what the state will exempt, it may be wise to hold on to the life insurance policy to help pay for taxes. Federally, you can exempt up to $5.49 million in 2018. Life insurance will go to your beneficiary’s income tax-free, but keep in mind, it is not estate tax-free.
Have You Thought About Long-Term Care And How You Might Have To Pay For It?
A lot of Life Insurance policies have accelerated benefits so you can use the funds if you are terminally ill or even for Long-Term Care uses. Look at your policy to determine what you might have available. Run through a what-if scenario if you go into a long-term care facility and what effect that might have on your assets and income for the surviving spouse. Depending on how long you end up in an LTC facility may also require you to spend down your assets. One way to avoid losing all your assets due to spending down is to change the ownership of your policy to an irrevocable trust where then the proceeds are protected. There is a lookback period so make sure to meet with an estate attorney to make sure it is set up correctly.
Do You Have Assets Left For Burial Expenses?
Even when you are no longer here, planning and paying for a funeral can be a burden on your loved ones. That is why it can be good to have some assets or even life insurance set aside to help cover those expenses. A lot of people today are paying upfront for the burial expenses and have everything already picked out. If you have enough assets or have already planned everything out then you may not need the policy.
These are not all the questions you should ask yourself, but it is a good start. You may not need your life insurance policy anymore, but before you decide that for yourself, make sure you are asking the right questions to yourself and loved ones and have done a thorough review of your retirement and have looked at the what-if scenarios. Planning for the unexpected is the first thing you need to do when planning for retirement, and sometimes a life insurance policy will help with those unexpected events. You may find that you may have another need for life insurance. Once you terminate your policy, it could be too late to go back and get another policy, or a lot more expensive.
Vincent Oldre, CFP®
Vincent Oldre, Assured Retirement Financial Group, Inc. and Assured Retirement Group, Inc. are not affiliated with or endorsed by the Social Security Administration or any government agency. All written content on this site is for information purposes only. Opinions expressed herein are solely those of Assured Retirement Group, Inc, Assured Retirement Financial Group, Inc. and our editorial staff. Material presented is believed to be from reliable sources; however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Advisory services are offered by Assured Retirement Financial Group, Inc. a Registered Investment Advisor in the State of Minnesota. Insurance products and services are offered through Assured Retirement Group, Inc. Assured Retirement Financial Group, Inc. and Assured Retirement Group, Inc. are affiliated companies. The presence information shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any State other than the State of Minnesota or where otherwise legally permitted.
Hi, Vince Oldre, a certified financial planner with Assured Retirement Group. Thank you for watching another video. I want to talk to you about an article that we just published in Investopedia, and it was also featured on NASDAQ. That is, do you still need life insurance when you are retired?
Now, you might feel like you have all your debts paid off, and you may not need life insurance anymore, but before you go and cancel your policy, you have to understand a few things. Number one is that the policy you have today could be a lot less expensive than if you need to get one later on in life. Number two, see if there are some other needs for that life insurance policy, and by asking some of these questions, or going through some of these questions, you might find that you might want to keep that life insurance policy.
As you get older, it’s a lot more expensive to get a new policy, and it’s a lot harder to get because you might have had some health problems in the past, that actually might make it really hard for you to get a new policy.
So here are some things to look at. Number one, always think about your spouse, right? Is your spouse going to be taken care of, meaning does she have enough income in retirement if you’re no longer here? If you realize that between the Social Security, pension income, and whatever else you have, that’s going to be there for her when you are no longer here, then you may not need that life insurance policy, if she is covered, but if she is not, that life insurance policy could be very crucial to your spouse.
The next thing you need to ask is do you want to make sure you leave a legacy behind? Do you want to leave money to your beneficiaries, or to your nieces, or daughter, or son, or grandkids, or charity event? If you do, there might be another good fit for life insurance. If not, well you may not need life insurance.
Another one that we want to ask do you have estate tax issues. Now, in Minnesota, currently, if you have over $1.8 million in your estate, you will have estate taxes. Federally, it’s about five-and-a-half million, so if you have more than five-and-a-half million in your estate, you will also have estate tax issues, and sometimes that life insurance policy can help pay for those taxes.
Now, keep in mind, life insurance is not estate tax-free, it’s just income tax-free, but again, that might be helpful to pay for some of those taxes. The other thing you want to ask is to have you thought about what long-term care expenses might look like?
Long-term care may or may not happen in your life, but if you have a life insurance policy, you want to look at if that policy has a long-term care rider or benefit to it. If it does, now you have long-term care insurance covered. If you are no longer here, and you had to use all that money that you saved to cover long-term care, that’s where life insurance might come in, so when you’re on longer here, that life insurance policy can kick in, and give income to your spouse, or to your loved ones that you want to make sure you left some money behind.
Lastly, do you have your burial expenses covered? Now, a lot of people that are in or near retirement are already starting to look at where they might be buried, and what those expenses might look like. They’re already starting to pay for those expenses. As long as you’re okay with making sure that you don’t have any money left over when you’re no longer here, you do have to think about how much money is there to cover, to pay for your burial expenses? Sometimes it can cost between 10 to $20,000, depending on how elaborate your burial ceremony is.
Now, these are just a few questions. I named five questions here today. If you do have any questions about your own life insurance policy, feel free to email me at Vincent.Oldre@AssuredRetirementGroup.com, or come to one of our events. You can go to our events page, and make sure you can come to one of our events, and we’ll talk about life insurance, and you can meet me there and decide whether or not you may or may not need life insurance anymore.
Until then, I look forward to seeing you next time. Thank you.