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Life Insurance
Reevaluate Your Life Insurance at Retirement
By Roger Wohlner
CERTIFIED FINANCIAL PLANNER™ Practioner, Asset Strategy Consultants
As retirement age approaches, it's usually a good time to reassess your life insurance policies, since your needs may change then. With your children on their own and no earned income to replace, you may no longer need a large life insurance policy. Especially if your insurance premiums are high, you may be tempted to cancel the policy, take the cash surrender value, and enjoy retirement. Before you do so, make sure there aren't other uses for your life insurance policy. Some possibilities include:
To leave a legacy to heirs
Many people like the thought of leaving a large sum to their children or grandchildren. With an insurance policy in place, you can feel free to spend your retirement assets during your lifetime, knowing the insurance policy proceeds will be paid to your heirs after your death. If you have a large estate, the policy proceeds can be used to help pay estate taxes.
To pay for college for grandchildren
With the rapidly increasing costs of college making it more and more difficult for parents to cover this cost, you might want to use an insurance policy as a college fund for your grandchildren. If you're still alive when they start college, you might be able to borrow some of the cash surrender value to pay these costs.
To support adult children
There are a variety of reasons why you might want to provide financial help for an adult child. Perhaps your child is a doctor, but has significant debt from college. Or your child might work at a profession that doesn't pay much.
To provide a large charitable contribution
A life insurance policy can serve a couple of purposes when making a large charitable contribution. You can name the charity as the beneficiary of the policy. Or you can leave other assets to the charity that would have been included in your estate and possibly be subject to estate taxes. The proceeds of the life insurance policy, if properly structured, can then be paid to your heirs estate and income tax free.
To help deal with long-term-care costs
Many individuals don't purchase long-term-care insurance, believing their spouse will care for them. However, when one spouse dies, who will take care of the other spouse? The proceeds of a life insurance policy can be used to provide long-term care for the surviving spouse.
To optimize pension benefits
When retiring, irrevocable decisions about benefit payments from pension plans must typically be made. An individual life income option will pay higher benefits than a joint and survivor benefit, but then your spouse will not have pension benefits if you predecease him/her. You could use the proceeds of the life insurance policy as a source of income for your spouse after your death.
While it is generally believed that life insurance needs decrease after retirement, there are a variety of reasons why you might want to retain your life insurance policy.
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