September 27, 2022

How can life insurance help after retirement

The thought of retirement is one that keeps many motivated to work. Being able to experience life off the clock is a great incentive, but only if it can truly be enjoyed. When it comes to preparing for the future, it's important to feel secure for yourself and any loved ones in case of the inevitable. 

So, can having a life insurance policy after retirement help put your worries at ease?

What does life insurance cover?

There is a misconception that life insurance is only meant to cover funeral expenses and maybe a little extra. Insurance is a bit broader than that, though. Before picking out a policy, it's important to keep in mind what exactly you're hoping to achieve with life insurance. Everyone's life situation is different, and you'll probably want to update the policy as life happens. A policy you sign up for at 30 is not necessarily the same policy you'd want at 60. 

The amount available after someone's passing depends on what is covered by the death benefit. Just because you're looking at retirement doesn't mean you still don't have as many financial obligations as you had 15 years ago. Here are some questions to consider when evaluating life insurance policies: 

  • Do you have a family depending on your financial support? 
  • Are you responsible for any ongoing payments?
  • Are there any bills you're even partially paying?
  • Will you have major, planned financial responsibilities in the future?
  • What is your end of life plan?

Types of Life Insurance Policies

How does life insurance work after retirement? Well, before we can understand how it works, it's helpful to get a greater understanding of what types of policies are available. Most of the various types typically fall within two categories: term and permanent life insurance. 

Term Life Insurance

This policy is sold in increments of years, from one up to 30. Many life insurance holders choose this option because it's the most budget-friendly and can have a big payout. The catch is that if you've outlived the policy, there is no payout. Here is an example:

  • Guaranteed Issue Life Insurance - As long as you fall within the requested age range, you can take out this policy. Payout may depend on how long the policy has been in place.

Permanent Life Insurance

This policy extends throughout a lifetime and builds value over time. Below are policies that are considered a type of permanent life insurance:

  • Whole Life Insurance - once you sign up, the monthly payment stays the same until death, as does the death benefit. The rate of return is certified once the policy has been taken out. 
  • Variable Life Insurance - while the payout and monthly payments are set when the policy is taken out, the living potential may vary. Essentially, the policies are linked with investment accounts. If the account does well, you could profit and take out or borrow more against the policy. It does need regular attention.
  • Guaranteed Universal Life Insurance - this has little to no cash value. The payout upon passing is guaranteed and there will be no increase in monthly payments. Just don't miss one.

How does life insurance work after retirement?

Now that you have an idea of what to consider with life insurance, let's talk more about how it applies to retirement. This insurance helps cover the income lost and pay for the last expenses. That's not the only way to take advantage of a policy, however.

A permanent life policy can accumulate a monetary value. So, the longer you have this policy, the more money builds over time. During retirement, you can use that as a source of revenue. Those dollars can avoid taxation as well. 

In addition, you can also take a loan from yourself. This isn't even a loan you have to pay back. It's taking from the cash value of the policy. If it isn't repaid, the money will eventually come out of the total death benefits.

Because there is no value building in the term policies, this only applies to permanent policies.

Putting Life Insurance to Use

If you're looking at retirement soon or later, it's good to have a life insurance policy in place. Whether it's to ensure your wishes are met upon passing or to help sustain your lifestyle, we can help you figure it out.

Feel free to reach out via phone or live chat so we can help you answer the question, "How does life insurance work after retirement?"