During your working years, you may have had your life insurance on auto-pilot. If you worked for a large employer, you may have had a group policy that provides 1x, 2x or 3x your annual salary. Young families with children, a mortgage and student loans may wisely purchase individual term life coverage to provide for their family in the event of their passing as well. For many families, life insurance is something that “happens” once or twice and then becomes a checked-off item on the to-do list.
So, you could find yourself asking: If I no longer have a working income or dependents to protect, do I need life insurance? This is a great and potentially important question that doesn’t have a black and white answer. Let’s explore a few common questions that may help lead you to an answer that fits your situation.
My term insurance is expiring soon. Should I renew my coverage?
For people who purchased a term life insurance policy, there comes a day- 10, 15 or 20+ years down the road, when that coverage will end. It is likely that you will receive a letter in the mail stating this and that you have the option to renew the coverage at an increased premium. Should you renew the coverage, get a new policy or do nothing?
When it comes to term insurance in retirement, there is an important question to ask yourself: Is there a specific reason that I need coverage for a certain amount of time? Some examples of this need may be:
- Covering a remaining mortgage balance
- Grandparents who have custody of or provide significant support to grandchildren
- A business ownership transition situation
- If there isn’t a defined need for coverage for a set number of years, then your days of benefiting from term life insurance may be in the past.
What about my spouse?
We don’t want to forget about your spouse. But let’s think for a minute; what would your spouse’s financial situation look like if you passed away today? It is likely that your retirement accounts, investments, bank accounts and other financial assets would be inherited by him or her. If you have a pension and elected a survivorship option, they should receive that income stream or a portion of it. They may also be entitled to widow benefits1 in regards to your Social Security income if it is higher than their own.
After taking some time to consider this, you may find that, at least financially, your spouse may not experience significant changes after your passing. That is not to say that providing a tax-free benefit to them via a life insurance policy is unnecessary. There may not be a better way to insure that your surviving spouse has ample spending and lifestyle flexibility than a life insurance death benefit. However, the need to cover your life for the benefit of your spouse is likely not as high as it was while you were earning income and saving for the future.
What about my children and grandchildren?
It’s important for our clients to think about the legacy that they want to leave for their family. However, this doesn’t necessarily have to wait until after you have passed away. Benefitting your children and grandchildren while you are alive allows you to see the impact that you make and revel in the showering of appreciation! Check out our article about a few easy ways to do this.
However, many of our clients want to be sure that they leave something financially significant behind for their family. Despite the noble intentions, we have seen this desire become a roadblock to pursuing retirement ambitions such as travel or other spending that may diminish the amount inherited by their heirs. We believe that this phase of your life should be spent embracing adventure and fulfillment without the guilt of spending your own money.
This is where some of our clients find peace-of-mind in having a life insurance policy in effect. You can know that a specific tax-free sum will be inherited by one or more members of your family when you pass. If there is anything left of your assets at that time, even better. Until then, you are free to spend your money knowing that you are set to leave a pre-determined financial legacy behind.
Life insurance can certainly have a purpose after you retire. That purpose may have shifted from “protecting your family” to “providing a legacy” and more attention may need to be paid to the specifics so that the coverage is in place for the rest of your life.
If leaving a legacy for your family is important to you, talk with us about your priorities and how you can make an impact.