If you’re approaching retirement, you may be in the process of evaluating your assets and your financial strategy. Retirement is a major challenge, and it requires a disciplined and focused plan. This is a great time to evaluate your savings, investments and risk management tools.
You also may want to take this time to analyze your life insurance. If you’re like many people, you bought life insurance at various points in your life, perhaps when you had kids, bought a home or got a big promotion.
As you approach retirement, though, you may feel like you no longer need your life insurance. In fact, many retirees cancel their policies for a variety of reasons. However, there may be good reason to keep your life insurance or even increase your coverage. Below are a few common myths about life insurance that many retirees believe. If you’ve bought into these ideas, it may be time to rethink your strategy.
Empty nesters don’t need life insurance.
This may be the biggest reason retirees don’t keep their life insurance. After all, you may have bought your life insurance as a protection tool for your spouse and young children. Now that the children are no longer in the home, you may feel like you don’t need to keep the protection in place.
However, you may not want to cancel those policies just yet. There are many reasons why it makes sense to keep life insurance in retirement. This is especially true if your policy has accumulated cash value. You may reach a point in the future at which the cash value will support the death benefit and you can reduce or even eliminate your premiums.
You can also redirect the purpose of the death benefit. Just because it was originally intended to protect your young children doesn’t mean it has to stay that way. You could now use the death benefit as a gift to your grandchildren, a donation to your favorite charity or a financial boost for your surviving spouse.
I don’t need life insurance if I have retirement savings.
Many people enter retirement with more assets than they’ve ever had in their life. You may feel that you have more than enough savings and investments to support you and your spouse, and that life insurance is unnecessary.
Remember, though, retirement can last decades. It’s possible that you and your spouse could live in retirement for 30 years. If you fail to stick to a budget, or if you face costly medical expenses or suffer a market downturn, your assets may not last as long as you’d hoped. Also, it’s possible that you could need expensive long-term care at the end of your life, and that care could drain your savings.
Life insurance is an effective tool because it gives your spouse a fresh boost in savings after your passing. If you pass away relatively early in retirement, your spouse may need to support himself or herself for many more years. Life insurance could help your spouse overcome that challenge.
I can’t use my life insurance while I’m still alive.
Perhaps the most important reason to hang on to your life insurance is that you may want to access it during your retirement. Contrary to popular belief, you can tap into your life insurance cash value before you pass away, and doing so may not even impact your death benefit.
There are two ways to access your cash value. One is through a withdrawal. You simply withdraw the funds from the cash value. The distribution may or may not be taxable, depending on whether you withdraw from your premiums or growth. Your life insurance company can tell you how much of your funds are available for withdrawal.
The other approach is to take a loan. These distributions are tax-free, but they must be repaid. You usually make repayment as part of your premiums. If you choose not to repay the loan, however, the outstanding balance is deducted from your death benefit. These two options could be helpful supplemental income strategies in retirement.
Ready to review your life insurance as you head into retirement? Contact us at Nicky Derouen Financial Services for more information. We can help you analyze your policies and your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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