Do You Need Life Insurance When You Retire?

Do You Need Life Insurance When You Retire?

Feb 08, 2018

iStock-502700362-[Converted].jpgIf you are like a lot of people you might be thinking once you retire, you don’t need life insurance, right? Not so fast!

The traditional thinking about life insurance is that you only need it when you have an income to protect, when you have a mortgage, or when you have kids to support.

Those are all valid reasons to have life insurance, but there are also some good reasons to have it after you retire.

Supplement your retirement income. Permanent life insurance not only provides protection if you die but also accumulates cash values that can be tapped into as a supplement to retirement income.

Transfer wealth. Life insurance can be an efficient way to transfer wealth to your heirs while avoiding inheritance taxes. While the federal exemption for estate taxes has been raised to $5.49 million for 2017, there are still state inheritance taxes to consider.

Of course, such policies have to be set up correctly. Life insurance benefits are generally free of income tax, but they are still subject to inheritance taxes if they are owned by the insured. That is, if you own a policy on yourself, then it is considered part of your estate.

Here are a few examples of how permanent life insurance can be used to transfer wealth to your children or grandchildren:

  • Use of an irrevocable life insurance trust. The trust would be the owner and beneficiary of the life insurance policy. You would then gift premiums to the trust—as long as the gifts are under the annual gift tax exemption, you wouldn’t have to worry about paying gift tax. With the trust as the beneficiary of the policy, the policy wouldn’t be included in your estate for estate-tax purposes. The proceeds from the trust would then be distributed to your children or grandchildren, based on how you design the trust. The downside of this approach is that, because the owner of the policy is an irrevocable trust, you have no access to that policy. You give up any access to it in exchange for the tax benefits.
  • Insure the children for the benefit of the grandchildren. You may have experienced health issues that can limit your ability to purchase insurance on yourself. By purchasing coverage on your children, with you as the owner and your adult grandchild as the beneficiary, you basically “skip a generation” and provide benefits to your grandchild. Generation one owns the policy so they can have access to the cash if they want, but then when they die, the policy goes into a trust for the benefit of generation three.

These are complex matters, so you may want to discuss these items with your financial and legal advisors to determine what post-retirement life insurance strategies make sense for you.

For more information on how life insurance can benefit you in retirement, contact your Western Fraternal Life insurance agent or the Home Office at 877-935-2467 or info@wflains.org.



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Category: insurance

Kevin Simpson

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CLU, CRPC, CLTC Sales and Marketing Manager


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