Life Insurance In Retirement?
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Do I Need Life Insurance In Retirement?
You probably have a good understanding of why life insurance is important when you’re still working. However, in retirement, you might not be sure. “Do I need life insurance in retirement?” is a question clients sometimes ask.
Let’s look at why people choose this product before retirement. First, life insurance can be used to provide income if the earner dies. For instance, a policy might help the living spouse or beneficiary maintain the same lifestyle. However, in order to retire, you probably have saved enough to life off without working. So, is life insurance still needed once you reach retirement? The answer is, in some cases, yes.
Do I Need Life Insurance or Not?
It is possible that you won’t need a life insurance policy when you retire. For instance, if you have all the income you need or don’t need a tax-free* income option. In addition, you may have a whole life policy or other universal life insurance policy already. In these cases, you might have a cash value associated with your plan. If your current plan suits your needs, then you may not need to look at life insurance in retirement. However, there are several reasons why certain types of life insurance, such as an indexed universal life (IUL) policy can be very beneficial in retirement.
Why Retirees Use an IUL
Because an IUL is not a true investment, the rules are different. Therefore, retirees have more flexibility with this product than some others. For example, IULs do not have contribution limits like 401(k)s or IRAs do. Instead, you can put in as much as you’d like. Also, IULs allow you to take the money out whenever you want to. Unlike traditional retirement accounts that require a minimum withdrawal each year, IUL’s don’t do that. In addition, you could take income from an IUL earlier than you can with most retirement plans. In fact, there is no penalty if you take out money before you are 59 1/2. But, there is a penalty if you do this with a traditional retirement account. No minimum distributions at age 72, either.
Another reason for an IUL is that it’s a safe place for your money. Other conservatice options exist, but an IUL has the added benefit of taking income tax-free.* For some, this offers an additional peace of mind. You can know your money is safe from the market. Yet, it is accessible when you need it.
*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security. All figures herein are hypothetical and for illustrative purposes only to explain general concepts. No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.