For most of your adult life, you’ve protected yourself and your family with life insurance. Having a back-up tool in place to help replace income for your family should you pass away is part of a sound wealth-preservation plan. For some people, once they officially retire and the children move out, canceling a life insurance policy makes sense — but this doesn’t work for everyone. Let’s explore some key reasons you may want to keep your life insurance policy.
When You Should Keep Life Insurance
1. You have people financially dependent on you.
Do you have a spouse or children who depend on you financially? Do you care for a loved one with a disability? If you answered “yes” to either of these questions, then you may need to keep your life insurance coverage.1 Without this protection, your family may be left without the income they need should you pass away unexpectedly.
2. You are still earning outside income.
Some people choose to continue working part-time when they retire as a way to fill income gaps beyond what their investments and Social Security benefits will provide. If you are still earning outside income as part of your retirement strategy — and others depend on this income — then you probably want to keep your life insurance policy.2 Without another strategy in place, you could leave your loved ones in a financial lurch and stressing to find a strategy that replaces your income.
3. You and your spouse have a large age gap.
Every relationship is unique, and some spouses have significant age differences between them. As a result, one spouse may be ready to retire years before the other. And should one spouse pass away before the other spouse’s retirement funds kick in, they’ll probably need some insurance coverage to help them fill the income gap.3 If you and your spouse have an age difference of 10 or more years, retaining life insurance could be a helpful buffer to help ensure you maintain the income you need.
4. You and your spouse rely on pensions with no death benefits.
Not every pension includes a death benefit. So, if you and your spouse rely on pensions in retirement that do not include this benefit, then one of you may be left in a bind should a spouse pass away unexpectedly. For this reason, you may want to keep your life insurance policy.4
5. You need to access your premium life insurance’s cash value for income.
Owning a premium life insurance policy allows you to build cash value in your investment. You can access this cash value to cover funds you may need for any reason. So, if you may need help covering gaps in your retirement income or addressing other financial responsibilities, you may want to keep your premium life insurance coverage.5 Also keep in mind that if you cancel your policy, you’ll receive a payout of this cash value, minus any potential surrender fees and loans you took against it, which also then becomes taxable income.6 As such, be sure to consult with a professional advisor to efficiently navigate this strategy if you decide to cancel your coverage.
6. You carry substantial debt into retirement.
Retiring debt free is ideal — because you can move into your next life stage with a sound financial standing. But, an increasing number of retirees carry substantial debt into retirement,7 whether from a mortgage or co-signing for a child’s college education. If you or your spouse retire with debt, then you may want to consider keeping your life insurance to help avoid the financial difficulty that could emerge without it.8
Your unique retirement goals and financial life will drive what life insurance choices are right for you in retirement. To explore if keeping life insurance makes sense, feel free to contact us. We’re always happy to talk and ready to help you strategically prepare for your financial road ahead.
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