Should life insurance be part of your retirement plan?


Here are some situations where life insurance may make sense for retirees, or those close to retirement.

Benefits at death
Should you die unexpectedly, life insurance may help provide funds needed to support dependent family members who are physically or mentally challenged.

Income replacement for surviving spouse
Generally, Social Security retirement benefits are paid to both spouses, either based on their individual work records or on the work record of one spouse, with spousal benefits available for the other spouse. At the death of a spouse, his or her benefits end, reducing the total benefits available to the surviving spouse. Life insurance can be used to replace the loss of income for the surviving spouse.

Pay off debt
While past generations often retired with little or no debt, it is not uncommon for today’s retirees to leave the workforce while still carrying a mortgage, car loan, and credit-card debt. Life insurance can provide the cash to pay off these debts, which is especially beneficial for a surviving spouse.

Provide a legacy
For many approaching retirement, as well as for those already there, a primary concern is having enough savings to provide income needed to live comfortably. While conserving savings and keeping track of spending in retirement are important, all too often retirees will forgo spending on themselves in order to fulfill a desire to leave a legacy. The death proceeds form a life insurance policy can provide a legacy for surviving family members, while allowing retirees to spend a little more on themselves, with the knowledge that they’ll be leaving something for their loved ones.

Final expenses
Proceeds from the life insurance can be used to help pay for final expenses, such as uninsured medical bills, funeral costs, debts, and estate administration costs. This may help preserve savings for other needs.

Living benefits

Source of retirement income
While life insurance is designed to protect against unexpected economic loss, cash-value life insurance also may provide a source of income during retirement. Earnings in life insurance accumulate tax deferred, and in some instances cash-value distributions can be income-tax free. However, loans used to access cash values from a life insurance policy will reduce the policy’s cash value and death benefit, could increase the chance that the policy will lapse, and might result in a tax liability if the policy terminates before the death of the insured.

Income you can’t outlive
Your financial circumstances may change during retirement, and the need for the policy’s death benefit may not be as important as the need for a steady income. One option is to exchange a portion or all of your policy’s cash value for an immediate annuity that can provide a fixed income for the rest of your life, and for the life of your spouse. If the policy is not a modified endowment contract and there are no outstanding policy loans, the exchange to an annuity should be income-tax free. But exchanging your cash value for an annuity will likely decrease or eliminate the policy’s death benefit.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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