As Baby Boomers continue to make their way towards retirement, many may feel they can do away with the added expense of life insurance. After all, in a large number of cases, the kids are grown and some of the larger expenses like college may be behind them.
But that doesn’t necessarily mean that you should get rid of your life insurance coverage quite so fast. In fact, in many ways, as people approach their golden years, they have even more reason to hang on to, or even add to, their life insurance protection. Here are 5 key reasons why:
1. Covering final expenses: While this one may seem obvious, many people don’t realize how expensive it can be to die! And, while no one really likes to talk about it, today—after factoring in the cost of a casket, headstone, burial plot, flowers, transportation, and the actual service itself—the average cost of a funeral can run in the neighborhood of $10,000 or more. That can be a hefty expense to leave to your spouse or other loved ones. But, by covering it with life insurance, you won’t be leaving them with ongoing financial hardship.
2. Supplementing or replacing income: If you’re married, it’s possible that the retirement income benefits that you and your spouse receive may end or become drastically reduced when one of you passes away. This is true with many types of defined benefit pension plans. Should this occur, the survivor may be forced to change their lifestyle a great deal, including moving to a different home, and forgoing various activities.
Having a life insurance policy in place, however, could solve this issue. Upon your or your spouse’s death, the policy’s proceeds could be converted into an income stream that could supplement or replace the income that’s lost. By planning ahead, you or your spouse can continue to live your present lifestyle.
3. Paying estate taxes: Believe it or not, when you die, you could owe money to Uncle Sam, and if you don’t have any funds earmarked for this potential debt, your loved ones may be forced to sell off assets or family heirlooms, often at below market prices, just to come up with the money.
A life insurance policy can provide you with a way to pay what’s owed on estate taxes for pennies on the dollar. And, by placing the policy inside of an irrevocable trust, you can keep the value of the policy out of your personal name, and in turn, out of the value of your overall estate, essentially reducing the amount that you owe.
4. Equalizing an inheritance. Life insurance can also be used to equal out an inheritance to your heirs. Upon planning your estate distribution, you may realize that additional funds are needed. As an example, if a business owner has three children, and two will be inheriting the business, but the third has no interest in the company, life insurance may be used to provide for the third child in an amount that is equal to the other children’s shares of the business.
5. Supporting a charity. As people move through life, they may also feel the desire to leave funds to a charity or similar organization. Life insurance can provide an ideal mechanism for doing so, as well as a number of tax related benefits to both the donor and the charity. These can include a tax deduction for the donor on the premium payments, as well as receipt of the proceeds tax free by the organization.
The Bottom Line
Regardless of your age, if you care about someone or something, then it’s very possible that life insurance may be required as part of your overall financial plan. Not everyone needs life insurance, and I would suggest that a review your current financial position and goals will help determine if you should consider life insurance for you and your family.