When approaching or entering retirement, you may put your estate and savings in order, but watch out you do not foolishly allocate your money to items that may be unnecessary. If you are considering life insurance to achieve some ends, avoid misjudging its benefit to you.
Life insurance has its uses for retirees. A few examples would be providing:
- For a surviving spouse.
- For covering final expenses and taxes.
- A legacy for your children.
- Estate equalization
We explain each of the above in separate posts of senior life insurance. But there are reasons to own life insurance when younger than no longer apply as we age.
One common mistake is buying - or perhaps maintaining - a life insurance policy when no one depends on you as a source of income and you also don't need the policy for the above-mentioned estate planning ends. A prime benefit of life insurance is protecting your family in the case you are no longer there to provide income. Perhaps your spouse has died, or your children have grown up and become independent. After supporting or assisting them all those years, you may want to reappraise your need for life insurance. You can get cash from life insurance as explained in our post on this issue.
Other benefits of life insurance include paying off a mortgage if you die. If you have no dependents, this may create an unnecessary expense. Or maybe you no longer have a mortgage or a very low balance. As you live and pay the remaining mortgage, its balance is always decreasing - and fast if you have paid it for years. Other options for handling the house mortgage may be less costly such as paying it off with other assets, or purchasing a life policy that can be also used for other objectives.
If you are still packing money away for later use in retirement, do not use life insurance as a savings tool when you have qualified plans like IRAs - traditional or Roth, 401(k)s, that you have not topped out for the year. Life insurance offers no deduction for contributing to it nor does its savings component generally have the potential to increase as fast as investments you may use in qualified plans. While insurance agents often site benefits of life insurance to include a saving vehicle, do not use life insurance for this purpose as it is not an investment.
With a variety of ways to solve problems, getting clear answers is essential. Buying mail-order life insurance often will not properly address all of your concerns and alternative solutions. Additionally, it is over-priced and using it can leave you empty-handed. Never buy such insurance without checking out the company and getting answers to all your questions and speaking with a professional.