Some people kick around the idea of letting their life insurance policy lapse after they retire. They make the mistake of thinking that because they are no longer working the coverage is superfluous.
While in some cases life insurance may be unnecessary after you leave the workforce, it is important to carefully consider your family’s financials before acting so you can make an informed decision. For many retirees, life insurance remains an important and necessary protection during your retirement years—despite what you may have been told by well-intentioned friends or relatives.
For starters, life insurance can be a critical source of income replacement for the surviving spouse. When your spouse passes away, your Social Security benefits will likely decrease significantly. Yet your monthly expenses—like property taxes, utilities and mortgage or rent payments—remain the same. The death benefits you receive from life insurance can help defray these ongoing costs. Keep in mind that many policies allow beneficiaries flexibility in how you receive death benefits; it’s your choice how you use the money.
Continuing to pay for life insurance is also important if you have children with special needs or financially dependent offspring. The death benefits offer piece of mind that you’ll be able to meet their ongoing needs in the event your spouse passes away.
Another reason to maintain your life insurance policy in retirement is to help pay off debts. While your goal should be to enter retirement debt-free, it’s not always possible—and, in fact, the debt burden is becoming more of an issue for many Americans. The problem is only likely to get worse as the student debt conundrum intensifies. Consider that the outstanding federal student debt for people age 65 and older grew from about $2.8 billion in 2005 to about $18.2 billion in 2013, according to the U.S. Government Accountability Office (GAO). If you’re still paying off debt during retirement, life insurance can help keep you from falling into financial distress after your spouse dies.
Yet another advantage of maintaining life insurance in retirement is the ability to receive a portion of your death benefits while you are still living. Known as accelerated benefits, these are optional, often no-additional cost riders that can allow you to access all or part of your death benefit, while living, if you experience a qualifying terminal, chronic, or critical illness or critical injury. Once you qualify, these benefits can be used for expenditures such as household expenses, in home care, and nursing home care, among other things.
Certainly deciding whether or not to terminate a life insurance policy that’s protected you all these years requires careful deliberation. The team at Anderson Retirement Solutions can help you make sound decisions related to your life insurance needs in retirement. Please don’t hesitate to contact us at 888.473.6931 if you’d like to discuss these important issues.