“Our children are grown, and we paid off the mortgage. At this stage, do we really need life insurance?”
We regularly field this question from clients, and our answer is, “it depends, based on supporting your unique needs and financial goals.” That said, life insurance solutions can do more than provide income to loved ones when you pass away. A diverse range of solutions can help you in key areas of your financial life.
Cover major expenses
- Medical: A living benefits rider can enable you to advance part of the policy benefit to pay for expenses if you are diagnosed with a life-threatening illness.
- Taxes and debts: With effective planning, life insurance proceeds can be structured to help pay estate taxes or outstanding loans.
- Long-term care: Hybrid policies combine life insurance with long-term care benefits that may help you pay for the costs of a nursing home, assisted living or in-home care — expenses Medicare does not cover. In general, these hybrid policies may be more affordable than traditional long-term care policies.
Protect your retirement assets
- Pension flexibility: Married couples could choose a higher monthly single life benefit payout (instead of a joint and survivor option) from a traditional defined-benefit pension. They then could redirect the difference in monthly income to a life insurance policy (provided they are insurable), which could help provide the surviving spouse with income. If the spouse dies before the pensioner, the surviving spouse could choose to increase his or her income by reducing the life insurance amount. There is also the potential to leave life insurance benefits to heirs, given that traditional defined-benefit pensions do not provide that option.
- Supplemental retirement income: You may need up to 85 percent of your pre-retirement income each year to maintain your lifestyle when you stop working. When properly designed for you, a cash value life insurance policy — such as whole life, universal life, or variable universal life — can generate cash value as a stable source of supplemental retirement income if needed.
- Potential portfolio returns: Universal and variable universal life policies can help support your long-term investment strategy. They combine life insurance coverage with the ability to earn potential investment returns, and in some cases with universal life policies, offer downside protection.
- Wealth transfer: Life insurance can protect and sometimes even increase the amount you’re able to pass on to a spouse or the next generation in your family. For example, if you don’t need the income from annual required minimum distributions (RMDs) when you reach age 73, you could consider using the RMDs to fund a life insurance policy, assuming you are in good health to qualify. The death benefit proceeds could create more wealth for your heirs, because life insurance proceeds are tax-free to the beneficiary, whereas IRA withdrawals count as taxable income.
Key questions to discuss with us
Your 50s and 60s are good times to consider your life insurance needs, as the cost may be more accessible than it would be in your 80s. The key is to think about your future needs and select the insurance solutions with the features you want.
We will help with this by providing personalized advice that supports your goals and addresses key factors such as your estate, beneficiaries and tax situation. Together, we will talk through important questions like:
- Are you earning income in retirement from consulting or part-time work?
- Are you carrying debt, such as a mortgage or student loan?
- Is anyone (a child or spouse) still depending on you for financial support?
- Will estate taxes be a concern for you and your heirs?
Let’s talk
Whether you need to continue saving, cover significant expenses or plan for wealth transfer, talk to us for advice on how life insurance may fit into your financial picture before and during your retirement.