Consider Keeping Your Life Insurance When You Retire

Do you need a life insurance policy in retirement? One school of thought questions this decision. Perhaps your kids have grown, and the need to help protect the household against the loss of an income-earner has passed.

If you are thinking about dropping your coverage for either or both of those reasons, you may want to ask yourself a few additional questions before moving forward.

Remember that several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Does your policy have a cash value? If you have a whole life policy, it may have built a cash value over time. Whole life insurance is designed to remain in force for your whole life, as long as you remain current with your premiums. Before surrendering a whole-life policy, be certain you understand the policy’s features and limitations.

Do you anticipate paying estate taxes? If the value of your estate exceeds federal or state estate tax thresholds, you may owe estate taxes. Life insurance proceeds may help your heirs manage the tax situation, and could prevent the need to sell other assets. Estate tax laws are constantly changing so if you don't think you will owe estate taxes based on today's laws, that may change in the future if the exemption threshold is reduced.  You may want to consider speaking with a legal professional, who can provide information on potential legislative changes.

Are you carrying a mortgage? If you borrowed to purchase your home or have refinanced and are carrying a mortgage, the proceeds for a life insurance policy may help your heirs manage the mortgage payments or pay it off completely.