A Beginner's Guide to Life Insurance Needs In Retirement
Even after the kids are up and out, life insurance is still an important part of life planning. Priorities do shift, which means the need for life insurance changes as well.
There are a few important reasons you may want or need life insurance in retirement. We’ll cover those in detail and share a few different life insurance types that may help you fill those needs.
First, we just want to say that many people don't have the right kind of life insurance to meet their needs. In fact, from our experience, most don't even know what kind of life insurance they have. We strongly encourage you to call your agent to have them review what you have currently. This should be done on an annual basis.
Our local agents, located in our downtown Decatur, IL office, can also help you talk through your needs for life insurance.
We do free life insurance policy reviews on your existing insurance. We’re always thrilled to let you know that your insurance is great and doesn’t need any changes, but if we can improve it, we’ll show you your options.
Do You Need Life Insurance In Retirement?
For most married couples, life insurance serves to protect their spouse. When children come into the picture, life insurance serves to protect the family. In both of these scenarios, life insurance is used to insure against dying too soon.
But when you’re retired and you’ve lived a good life, you know that the end is inevitable. So, what’s the purpose of life insurance when you don’t need protection against premature death?
Here are the five possible reasons you may need life insurance coverage after you’ve retired:
- Funeral expenses
- Outstanding debts
- Leave a legacy
- Income protection
- Long-term care costs
Let’s talk through these briefly.
Funeral expenses are generally more than you expect. Just for standard selections – nothing fancy – you’re looking at over $7,000. If you want to add some nicer touches, like a fancier casket, some flower arrangements, maybe a catered meal, you’re looking at $10,000-$15,000.
If there isn’t money set aside for your funeral, those expenses fall – most likely – on your children or your spouse.
If they’re not financially prepared for this, it can make an already devastating time even more stressful.
We hope that after you’re retired, you’re not living with any debt, but it’s not that uncommon. Whether you’ve just financed a new house, a new car, or you have some credit card debt, it’s important to buy insurance that will cover it.
If anyone has cosigned for you, it’s even more important, but that debt will generally fall on your spouse or your children.
Life insurance can make sure that your debts are paid for if there’s still money owed when you pass.
Leave a legacy
Life insurance can be a great tax advantageous way to leave an inheritance to your children. Additionally, you use a life insurance policy to leave a donation to a charity in a structured, legally sound way. In other words, you can outline your beneficiary and you know that’s where the money will go.
Life insurance policies can build cash value, and they’re a much better way to pass money to your loved ones versus just keeping that money in a bank or CD.
If your spouse (or someone else) is relying on your income, and they wouldn’t be able to maintain their living situation without it, a life insurance policy can provide that needed protection.
Long-term care costs
This one is a bit different – there are life insurance policies that allow you to accelerate the death benefit if you end up in a long-term care facility before you die.
In the past, a traditional long-term care insurance policy would’ve done the job here, but those are not as attainable as they used to be. Many companies have pulled their products off the market, and the ones that still offer it have very strict guidelines. Generally, only about 50% of people are even approved, and those that keep their policies experience very sizable rate increases.
This is not to say that long-term care insurance isn’t something to look at, but there are these life insurance policies that have long-term care benefits included.
What Type of Life Insurance Do I Need In Retirement?
There are many different options as far as life insurance is concerned, but we do want to start with one that we don’t usually recommend to older clients.
Term life insurance is an incredible product for younger folks – those that are in their 20s, 30s and 40s can buy very large amounts of protection for a very affordable price.
However, as you get older, this product starts to make less sense. The premiums go way up, and you may not necessarily need the same kind of protection.
The only time we would recommend a term life insurance product to someone who is retired is if they’ve just acquired a new debt. For example, if you just bought a new house, you might buy term life insurance for the length of the mortgage.
In all other cases, a permanent life insurance policy fits the need much better.
Final Expense Insurance
Final expense insurance – sometimes referred to as burial insurance – is designed to cover the cost of your funeral and any other final expenses you may have.
These policies are built for final expenses, so the death benefits and the premium match the need. You can get a $15,000 death benefit – perfect for funeral costs – for as low as $53 per month*.
Final expense insurance also has options for individuals who have health conditions or who use tobacco. Keep in mind that with final expense insurance, your premiums will never go up, and your coverage will never go down.
*For a 65-year-old female, non-tobacco, in Decatur, IL. Rate listed is for the most competitive final expense carrier as of March 2019.
Permanent Whole Life Insurance
Permanent whole life insurance offers protection for as long as you live (as long as you pay your premiums). Death benefits are paid to your beneficiaries income-tax free, and you also accumulate cash over time.
The cash value can be accessed during your lifetime if you need it. A permanent whole life insurance policy can be used in a variety of different ways, such as:
- Paying funeral costs
- Paying medical expenses
- Paying mortgage or other debts
- Paying taxes
- Paying estate settlement costs
- Ongoing expenses
- College expenses
- Leaving a legacy to your loved ones
Permanent Whole Life Products come with a variety of payment options, including paying a monthly premium for life, paying for the entire policy in 10 years or 20 years, or even doing a single premium, which is called High Cash Value Single Premium (HCV-SP).
High Cash Value Single Premium (HCV-SP)
This type of permanent life insurance sounds complicated, but when you break it down, it’s very simple to understand.
If you have a large sum of money, and your intent is to pass that money on after you pass, you can put it into a life insurance policy. If you put that sum of money in all at once, it’s a “single premium.”
And because you’re starting with such a large sum, the policy has a high cash value.
HCV-SP life insurance policies are a great fit if you have money in CDs or savings accounts that you don’t plan on using. These can also make sense for covering final expenses if you have money saved up for that purpose.
For example, let’s say you have $10,000 in your savings account that’s meant to be used for your funeral. You can put that into a HCV-SP policy. Contuing with this example, that $10,000 single premium would actually amount to a $18,000+ death benefit. You can see why there is such an advantage to moving that money here rather than keeping it in a CD or the bank.
Let’s say you have $100,000 that you plan on passing down to your children. You know you won’t need that money for anything in the near future.
If you put that money into a HCV-SP life insurance policy, your death benefit – or face amount – would be over $164,000. The total cash value and the death benefit would also grow over time. If you started this at age 70, by the time you were 85, your death benefit would be over $205,000, and your total cash value would be over $157,000.
There are some fine print details that go into these policies, but we could outline that for you using your own real-life example. Just give us a call and we can go through an illustration any time (217-423-8000).
Life Insurance with Long-Term Care
If you’re looking for a way to protect yourself against the very expensive cost of long-term care, there is a life insurance solution.
This life insurance policy gives you the option to take out a monthly long-term care benefit before you die if you need it. If you don’t, your death benefit goes to your beneficiary just like any other life insurance policy.
The benefits of this solution are that someone is going to get paid – you’re insured with the long-term care benefits, your beneficiaries will get the money at death, or you could have a combination of the two. There are also no rate increases with this product.
A couple of cons would be that there is no inflation rider, which means most people won’t purchase enough to be fully insured. Additionally, premiums are paid until death – they aren’t waived once you start going on claim.
However, there are limited pay options.
For example, you could pay off the entire policy in 12 years – you’d just be paying a higher premium in order to do so.
There’s no harm in applying to see what the insurance company will offer you. There is no money collected with the application, so we always recommend clients who are interested to see what offer they can get before making any decisions.
Choosing the Right Life Insurance For You
We understand that one life insurance option isn’t going to fit everyone’s needs. The agents here at Sams/Hockaday will go through a personalized needs assessment with you to determine if:
- You have a need for life insurance
- What those specific needs are
This will help us determine which kind of policy – if any – will work for you. Don’t be concerned if you’re a tobacco user or have any serious medical conditions. We have plenty of options to choose from, including policies that don’t ask you health questions and have no medical exams.
We even have a life insurance plan that gives smokers a chance to quit before raising their rates.
Whether you’re completely new to life insurance, or you want us to make sure your current policies are still the best fit for you, don’t hesitate to schedule a free consultation.
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