Who Needs Another Life Insurance Pitch?
Have you seen the Bill Murray movie, Groundhog Day? No matter how many times I watch it, one scene always has me laughing. It's the scene where Bill Murray is accosted on the street by a former classmate who immediately tries to sell him insurance.
In this scene, Needle Nose Ned fits the stereotype of an obnoxious, pushy sales man. I wonder how many people avoid life insurance based upon the preconceived notion they are being sold a product they don't need.
Most of us think of life insurance as protection against financial loss should we die prematurely. But if and when we reach retirement and the kids are all self-sufficient, do we still need life insurance? The answer is maybe–or maybe not. Here are some situations where a life insurance product may make sense for retirees, or those close to retirement.
Provide for a dependent family member
Sometimes, even in retirement, there are family members who’ll depend on you for financial and/or custodial support. Should you die unexpectedly, life insurance may help provide funds needed to support dependent family members who are physically or mentally challenged.
Income replacement for surviving spouse
Generally, Social Security retirement benefits are paid to both spouses, either based on their individual work records or on the work record of one spouse, with spousal benefits available for the other spouse. At the death of a spouse, his or her benefits end, reducing the total benefits available to the surviving spouse. Life insurance can be used to replace the loss of income for the surviving spouse.
Pay off debt
While past generations often retired with little or no debt, it is not uncommon for today’s retirees to leave the workforce while still carrying a mortgage, car loan, and credit-card debt. Life insurance can provide the cash to pay off these debts, which is especially beneficial for a surviving spouse.
Provide a legacy
For many approaching retirement, as well as for those already there, a primary concern is having enough savings to provide income needed to live comfortably. While conserving savings and keeping track of spending in retirement are important, all too often retirees will forgo spending on themselves in order to fulfill a desire to leave a legacy. The death proceeds from a life insurance policy can provide a legacy for surviving family members, while allowing retirees to spend a little more on themselves, with the knowledge that they’ll be leaving something for their loved ones.
Unfortunately, the expense of dying is often overlooked or underestimated. Uninsured medical bills, funeral costs, debts, and estate administration costs can add up. Typically, these expenses are paid in a lump sum, which can reduce savings for surviving spouses and dependent family members. Proceeds from life insurance can be used to help pay for these final expenses, which may help preserve savings for other needs.
Source of retirement income
While life insurance is designed to protect against an unexpected economic loss, cash-value life insurance also may provide a source of income during retirement. Earnings in life insurance accumulate tax-deferred, and in some instances, cash-value distributions can be income-tax free. However, loans used to access cash values from a life insurance policy will reduce the policy’s cash value and death benefit, could increase the chance that the policy will lapse, and might result in a tax liability if the policy terminates before the death of the insured.
Income you can’t outlive
Your financial circumstances may change during retirement, and the need for the policy’s death benefit may not be as important as the need for a steady income. One option that may be available is to exchange a portion or all of your policy’s cash value for an immediate annuity that can provide a fixed income for the rest of your life, and for the life of your spouse if you choose. If the policy is not a modified endowment contract and there are no outstanding policy loans, the exchange to an annuity should be income-tax free. But exchanging your cash value for an annuity will likely decrease or eliminate the policy’s death benefit. These exchanges work only one way–you can’t exchange an annuity for a life insurance policy.
Long-term care benefits
Some cash-value life insurance policies provide multiple sources of protection. Along with the death benefit and potential cash value, these policies may also provide a long-term care benefit. Often, these policies allow for a portion or all of the death benefit to be “accelerated” if used for the payment of qualifying medical and long-term care expenses.
Life insurance provides protection for your family’s financial future should you die during your working years. However, life insurance may provide other benefits that can be useful during your retirement.
Later in the Groundhog Day movie, Ned our obnoxious salesman recounts all of the insurance he sold Bill Murray's character. It's ridiculous in how he was oversold more than he needed. See, it is possible to have TOO much insurance, or to be over-insured for your needs. It's obvious that Ned never did a needs assessment, but was more concerned with a sale.
It's possible that you need insurance. Many people are underinsured. But that all needs to be determined based upon an individual assessment and fit in as part of a holistic financial plan. If you'd like a free strategy session to see if your insurance is appropriate for your financial strategy, schedule a appointment online by clicking below, or call our office at 309-808-2224.
Krista McBeath is an Investment Advisor, Chartered Financial Consultant, a Licensed Insurance Advisor, a Fiduciary, and an experienced tax advisor who specializes in financial planning, investments, and insurance.
She utilizes advanced tools for in-depth calculations that analyze tax and retirement scenarios to help her clients avoid a future tax time-bomb. Whether this means enjoying more money in retirement or passing along assets to loved ones, planning makes the difference.