Friday, January 8, 2016

5 reasons to keep life insurance in retirement - By Tricia Zwirner, State Farm

Your house is paid off, your kids are independent and you’ve built up a considerable nest egg. So why should you continue to pay life insurance premiums after you retire? 
If you’re thinking about dropping your life insurance, or if you’re younger and looking at your long-term options, know that your life insurance may allow you to do one or more things in retirement:

1.      Care for dependents
“Some individuals may still need the underlying coverage that life insurance provides,” said David Morganstern, a certified financial planner in Portland, Oregon. Life insurance can help supplement available income sources such as Social Security—or help your family pay off significant financial obligations—like a mortgage—once you’re gone. 

2.      Secure a loan
Whole life insurance accumulates a tax-deferred cash value, and policyholders can borrow against this amount. A retiree who’s downsizing, for example, could use the money to cover expenses while waiting for his or her home to sell. When choosing this option, keep in mind that the loan will accrue interest, which must be paid in order to keep the policy from terminating prematurely. Loans also reduce the cash surrender value and death benefit of the policy. Consult your tax advisor about possible tax consequences of this option. 

3.      Ensure an inheritance
You can choose to leave your life insurance payout to your children, their children or your favorite charity. Even better: “Life insurance proceeds are generally not taxed as income,” Morganstern said. Beneficiaries generally receive the money tax-free.

4.      Boost your pension
Pension recipients typically choose between two plans: Single-life, which pays an income for as long as you live; and joint-and-survivor, which pays a smaller income over both your and your spouse’s lifetimes. With life insurance, you could choose the larger single-life option and your spouse could use the insurance payout to help cover the lost income if you pass away first.

5.      Pay estate taxes
When properly owned, and in conjunction with an estate plan put together by a qualified attorney and other professionals, life insurance can be an effective tool to help pay taxes on a high-value estate after your death. “Life insurance is instantly liquid,” Morganstern said. With funds available to help pay taxes, your family could avoid taking on additional financial burdens or having to sell the estate.

Choosing a Policy
Start your evaluation by considering which type of policy best suits your long-term plans. Once you decide which type of insurance is right for you next determine how much coverage you need.  Life insurance is not an alternative to retirement savings. Contact an agent today to review how life insurance can be used as part of your comprehensive retirement plan

No comments:

Post a Comment