Now retirement is ahead and with the hit your nest egg took in the recession, along with the reduction in your monthly income after you retire, you need to cut costs.
It’s tempting to drop your life insurance to save money, but is retirement really the time to cut back on insurance? Take a look at your situation to see if holding onto life insurance is the best option for you.
Will Your Family Be Okay?
The reason you bought life insurance early on was to provide for your family in the event of your death. In her article “Do You Need Life Insurance in Retirement?” for U.S. News and World Report, Emily Brandon says that, while life insurance provides security for young families, their needs can change over time. Brandon also reports that more Americans are working past traditional retirement age or even taking part-time work after retirement. Will your family be okay if you pass away? If providing an income means the difference between your family continuing to live comfortably or plummeting to poverty level, then you should keep the life insurance you have. On the other hand, if you have no earned income or don’t have any dependents who will need assistance when you’re no longer around, then it makes sense to let the life insurance go.
What Do You Owe?
If you owe a substantial amount of money and have few assets, such as cash, property and investments, keep paying those life insurance premiums. Once you pass away, the creditors will still need to be paid. Plus, there are additional costs known as “final expenses.” Take a look at the assets you have. If they are outweighed by what you owe, and you don’t have a life insurance policy in place, you’ll leave your family holding the bag.
How Do Estate Taxes Come Into Play?
The next time you’re talking to your financial or estate planner, zero in on the subject of estate taxes. Leaving your heirs a large inheritance might not end up being the benevolent act you intend it to be. If you’re leaving behind a business that doesn’t have sufficient liquid assets, your family could end up having to sell in order to access the cash to pay the taxes. Even if your estate is fairly liquid, it’s still a shame for your heirs to have to fork their legacy over to the government. Kiplinger reports that if your estate is large enough to subject your family to the estate tax, the death benefit from your life insurance can be used to pay off the IRS. Holding the life insurance policy in trust exempts it from being taxed as part of your estate.
Retirees With No Life Insurance — Now What?
What if you’re on the brink of retirement and realize that one or more reasons to have life insurance apply to you — and you’re without life insurance? Just because you didn’t buy a policy in your 20s doesn’t mean it’s too late. Depending on your health, Jane Bryant Quinn of AARP says you may be able to buy 10- or 20-year term coverage at an affordable rate. You’ll want to shop the range of premiums available. For example, you could view Statefarm.com life insurance quotes on the website to see which policy and rates suit you best. The upside is you don’t need as much coverage as you did when you were 25.