Our featured article of the month, Consider Keeping Your Life Insurance When You Retire, starts the conversation on this topic and expands on it slightly in regards to insurance planning strategies.
Traditionally, life insurance was considered unnecessary once you hit retirement, the nest was empty and a liability such as a mortgage was satisfied. However, with the potential repeal of the estate tax limit in 2026 and practical estate planning purposes, life insurance may play a vital role. Click Here to read an article outlining the future tax law changes.
Without Congressional action before 12/31/25, many more Americans could be affected by a lower estate tax limit. If your estate could be affected, life insurance benefits could provide the necessary liquidity for your beneficiaries to fulfill a tax obligation.
Practically, even with estates that would likely not exceed federal estate tax limits, life insurance proceeds can provide quick access to cash for various final expenses. The liquidity would allow beneficiaries to avoid being forced to sell assets or immediately probate the Will in order to access needed liquidity. For instance, a beneficiary who primarily inherits an IRA, may not wish to sell IRA held assets in order to pay for final expenses. The tax cost could be significant reducing the benefit of inheriting the tax favored investment. Ultimately, an analysis of your situation as well as a cost benefit review would help determine whether life insurance in retirement make sense for you.
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.
This article is for informational purposes only and is not a replacement for real-life advice, so you may want to consider asking for guidance from a financial professional before modifying your life insurance strategy. Life insurance is not insured by the FDIC (Federal Deposit Insurance Corporation). It is not insured by any federal government agency, bank, or savings association.
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 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.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.