When you envision retirement, it likely includes things like traveling, spending time with family and enjoying life. One of the last things on your mind is life insurance. You’ve spent your life building a nest egg to live on and have some to leave to your loved ones. However, life insurance is a key part of retirement planning not to mention a part of being financially stable.
If you’re close to retirement and are debating the need for life insurance, keep the following in mind.
What to Do Prior to Retirement
Retirement planning is a marathon, not a sprint. But, as you approach the finish line you need to get a full picture of where you stand financially to ensure you’re on the right track. To do so, you want to ask yourself some questions – such as:
- What sources of income do I have?
- What debts do I owe?
- How much is left on my mortgage?
- How good is my health and that of my spouse?
- What responsibilities do I have to provide for family members?
You may have other questions, but these provide a good start. If you’re self-insured, great, but that does not negate the potential need for life insurance coverage as you don’t know what life may throw your way in the coming years.
This is where speaking with a financial advisor is vital as you approach retirement, as they can help you assess your needs and understand how life insurance can play a role in that. “Someone who is self-insured should work with their financial advisor on how a life insurance policy can help them meet their financial goals,” says Annise Henson, Manager, Product & Market Development at Unum.
Ultimately, the key is to look at your finances from a holistic level, and likely with an advisor, to help you chart a successful financial course during the next phase of your life.
What You Shouldn’t Do
You may be tempted to cancel your insurance coverage as you approach or enter retirement. It’s easy to think your retirement assets will cover your needs, but making the life insurance decision requires due diligence.
Simply canceling your life insurance policy(ies) can pose major problems that you don’t realize at the time. “If coverage is canceled, it may be difficult or expensive to replace it,” adds Henson pointing out that it may not be as simple as you think to go out and buy coverage after canceling it.
Henson notes the underlying problem of canceling coverage,
“Canceling coverage purchased when you are younger and replacing it with similar coverage purchased at an older issue age will lead to either higher cost or lower benefit amounts. Additionally, evidence of insurability may be required to buy life insurance,” she said. “Health conditions that have occurred since coverage was originally purchased may make a later life insurance purchase expensive or unavailable.”
As you face the temptation to cancel coverage, make sure to do your homework so you don’t wind up in a worse position.
Why More Coverage, not Less, is Needed
Life insurance is often thought of as being only for those with growing families to replace income in the event that one partner suffers an untimely death. In many cases that’s a myth – life insurance, and often more of it, is a necessary part of retirement life. Below are a few of the things life insurance can help provide for during retirement:
- Pay off debt. If you have high-interest debt, life insurance can help pay those debts off, so your family won’t have to worry about it.
- Pay for your final expenses. Burial and funeral arrangements are expensive. Life insurance helps cover those needs without adding extra stress to your family.
- Pay off your mortgage. 21% of those 75 and over carry mortgage debt into retirement. Life insurance proceeds can pay off the house when you pass.
- Care for family members. Depending on your situation, life insurance proceeds can help continue to provide for their needs upon your death.
- Give to causes close to your heart. Life insurance can be used as a means to give charitable gifts to different causes or organizations. If you have a charity you want to give to without impacting the inheritance you leave for your family, life insurance is one way to make that possible.
These are just a few of the reasons why you may need more life insurance coverage, or keep your current coverage at the very least.
It takes years to create the kind of retirement you want. Don’t put it at risk by not continuing coverage.