Do I Need Life Insurance After I Retire?
Life insurance is meant to meet your family’s financial needs if someone passes away. When you leave employment, your employer-sponsored life insurance will likely terminate. Unless you already have a private policy in place, you may need to obtain coverage to meet your family’s financial obligations and continue their lifestyle should you pass away.
How Does Life Insurance Work?
A life insurance policy is a contract between you and an insurance company. As long as you pay your premiums according to the agreement, the insurance company will pay a specific sum (death benefit) to the list of recipients you chose (beneficiaries) upon your death.
The price you pay for the policy depends on several personal factors that may include your age, gender, and medical history. Other variables such as the type of policy (term or whole life) and coverage amount will also affect the price.
After you pass away, the life insurance proceeds are paid directly to the listed beneficiaries, who may use these funds however they wish.
Can’t My Family Just Use My Retirement Accounts?
These accounts may not be sufficient to meet your financial goals upon passing. Life insurance also pays a cash benefit tax-free to the beneficiary. Retirement accounts like an IRA, Roth IRA, 401k and 403b also have beneficiaries. However, these types of accounts transfer to the beneficiary as a new “inherited” account. Some may have tax consequences and distribution rules may apply to the beneficiary.
Considerations for Life Insurance Needs
Deciding whether you need life insurance or the amount you may need depends on many factors. Some may include:
Funeral Expenses - Paying for a funeral could be a financial hardship for your family if savings are not available to cover it. According to the National Funeral Directors Association, the 2021 national median cost of a funeral and vault burial was $9,420.
Your Family’s Living Expenses - If your household is dependent on your retirement income, you may need life insurance to help cover the gap. For example, when you pass away, your Social Security benefits may stop. If you have a pension, it may terminate right away or cease after a certain period depending on how you initially claimed the benefit. Would your surviving partner be able to continue to maintain your home on their income alone?
Debt - Having hefty liabilities such as a mortgage, credit card debt, or final medical bills may be a hardship for a surviving partner if money is not available to meet the monthly payments or to pay off the debt.
Gifting - You may have planned to assist your children or grandchildren with their education expenses or wanted to make a gift to your favorite charity. Having a life insurance policy may provide the financial support you intended.
Call Professional Financial Management Today
With PFM’s Wealth Advisory Service, you will receive a thorough written plan of your current and future life insurance needs. As fiduciaries, we do not sell insurance, but we help you determine how much and what type of insurance you need to meet your specific goals. Having the right protection in place can give you peace of mind knowing that you have a solid financial plan now and in the future. Call us today to learn more about how PFM can help you achieve your financial goals.