Two questions our clients ask us regularly are: “Do I need life insurance after I retire?” and “How does life insurance fit into my retirement planning?” The answer really depends on where you are in your retirement journey.

If you’re already retired

The general rule has been that if someone will experience a financial loss upon your death, then you should have life insurance to provide income or cover expenses. If you have stable income and that income would remain the same upon your death, then life insurance may not be necessary. Usually, these policies are permanent or whole life policies that last until your death. However, that may not be the case. Most people aren’t aware of an option that provides a death benefit and a tax-free stream of income. This is called cash value life insurance. 

Cash value life insurance is permanent life insurance that provides coverage for the policyholder’s life. Premiums are allocated to the cost of insurance and the remaining deposited into a cash value account. Upon the death of the policyholder, the insurance company pays the full death benefit while the cash value component serves as a living benefit for policyholders from which they may draw funds.

The cash value policy is an asset that provides tax advantages and income that can be used for long-term care, home healthcare, or other expenses related to illness and aging. If you don’t use the cash value while you are alive, your beneficiary will receive that income tax-free. The death benefit will also stay with you through age 100 and is distributed to beneficiaries.

If you are still a long way from retirement

If you are currently working and are some years away from retirement, the best way to work life insurance into your retirement plan is to buy a term life policy with an appropriate death benefit and invest your other disposable income into your retirement accounts. In this instance, we recommend a few things that will allow you to protect family from financial hardships.

First, you should buy term life insurance. This is the most affordable type of insurance and will allow you to continue to invest more of your income. You should make sure that you buy enough coverage so your survivors can cover large debts, pay for childcare, and handle other major expenses. The length of the policy should be determined by how long others will be dependent on your income and the amount you need will depend on how much replacement income your family will need and how many years they will need it. Future debt and obligations should also be part of this determination. Keep in mind that even if you have an employer-sponsored benefit, that often isn’t sufficient coverage, and you may consider an individual policy.

Secondly, create an emergency account equal to 3-6 months of living expenses. This money should be used to cover any unexpected expenses and will allow you to keep your retirement saving on track.

Lastly, invest in long-term disability insurance that will replace lost income in the event you are no longer able to work. As with life insurance, this is often an employee benefit, but is a good idea to consider additional coverage. Here’s another tip: select a guaranteed renewable and non-cancellable policy that locks in your premiums. This will keep the policy active as long as you continue paying.

Once you have provided for the “worst-case scenario,” you should invest the rest. Having life insurance in your retirement plan prior to retirement will keep you on track to plan for the future while providing for those around you if your life ends. This is an essential part of any effective retirement strategy.

In conclusion, term insurance is like renting an apartment – it ends at a certain age. Cash value, whole life is permanent, like purchasing a home and the death benefit is for your lifetime.  We believe life insurance is an asset for retirement planning, not and investment. It is beneficial for legacy planning and securing your future.

At Blue Waters Financial Group, we can help you position your life insurance in your retirement plan at any age. Our goal is to protect your assets and provide you with a way to live a worry-free retirement and do the things you want.

Want to know more? Schedule a time to discuss your life insurance. To schedule your no-obligation meeting, go to our contact page or call us today at 704-790-2583 (BLUE).insur