February 28, 2020
Entering into your retirement years is a time that many (if not all) people reassess their assets and financial plans in order to ensure our golden years are secure. All too often, during that review a life insurance policy starts to look more like a liability given the typical life changes (the family is grown, the mortgage is on track or even paid off) at this stage in life. This is especially true when the likelihood of increasing life insurance premiums and healthcare costs looming on the horizon are considered. But here are five compelling reasons to keep that life policy in-force, when possible:
- Estate Planning
Life insurance is a tried-and-true method of passing wealth on to your family’s next generation(s). The tax advantages of a life insurance death benefit is a powerful reason to consider keeping your life insurance coverage if the premiums have not exceeded your financial planning.
Life insurance can also help families whose estates also include illiquid assets, like real estate or a business. The life insurance death benefit can be used to balance the inheritance to an heir who is not part of the family business or is not inheriting a family property.
- Access to Liquidity
Policy holders with a permanent life insurance policy (most commonly, whole life and universal life) may be able to access the accumulated value built up in the policy during their retirement. Permanent life insurance policies can be tapped through a partial withdrawal of the cash value or a policy loan, if supplemental retirement income is needed.
- Support for a Surviving Spouse
The death benefit from a life insurance policy can make a big difference during a difficult time of loss. Knowing that your funeral is paid for and that your surviving spouse will not have to worry about the mortgage are two of many reasons to consider keeping a life insurance policy in-force through your retirement years.
- Financial Protection from a Terminal Illness
An increasing trend in the life settlement industry is for life insurance policies to include an Accelerated Benefit Rider. These riders allow the policy holder to access a certain percentage of their policy’s death benefit while the insured is still living, in the event of a terminal illness diagnosis. The eventual death benefit payout is reduced by the Accelerated Benefit provided, but for many in this difficult situation, an Accelerated Benefit can provide significant funding for medical and long term care services.
- Life Settlements
Another recent trend related to life insurance is a growing awareness among policy holders that they can sell a policy they own in a transaction known as a life settlement. Life settlements are a regulated transaction where the seller receives a cash payment greater than the surrender value of the life insurance policy, but less than the death benefit. The buyer of the policy then takes over all future premium payments on the policy in exchange for becoming the owner and beneficiary. Life settlements can even be used as a source of funding for long term care services life in-home care, assisted living, and nursing home care!
Many retirees find that at some point, their ever-increasing life insurance premiums rise to where they need to decide if keeping the policy is still worth it. Our hope is that this article not only helps illuminate why a policy holder may want to keep a life policy in-force through their retirement years, but also to provide some strategies and options for when the policy no longer makes sense to hold on to.