From the moment you started your first job, life insurance has likely been a part of every stage of your adult life. But now that you're retired (or going to be!), what happens next? When your employer isn’t paying for your life insurance anymore, it can be daunting.
As you enter retirement, you have to decide whether you want to take out a new policy or risk it without one. How do you make the best choice?
The point of life insurance is to protect your family members and loved ones from the loss of income if you were to pass away. There are two main types of life insurance: term and permanent. The difference between the two comes down to cost and plan length.
Term life insurance is significantly less expensive than permanent life because it only covers you for a set period. Permanent life insurance lasts your entire lifetime, which is why it’s the more expensive (but less risky) option. It’s typically not the best option for retirees due to the cost.
With either policy, your loved ones can spend the death benefit on costs like funeral expenses, mortgage payments, other debts, and more. The goal is to provide financial insulation for your loved ones so they won’t need to worry about money while grieving.
The ladder strategy is a great way for retirees to leverage life insurance. With the ladder strategy, you “stack” multiple term life insurance policies to expire over different periods. Doing so ensures that you are only paying for the necessary coverage while giving you the peace of mind that your loved ones will be financially protected.
Laddering term life insurance is pretty simple: you’ll have an increased amount of savings and will need less life insurance coverage as you get older. Stacking—or “laddering”—multiple life insurance policies allows you to only pay for the coverage you need.
The ladder strategy could potentially put participants in jeopardy of not having enough coverage. Still, it shouldn’t be a glaring issue if you have a steady handle on your financial situation and future financial needs.
If you missed it in our last blog post, a pension maximization strategy involves opting for the highest possible annuity payout for the plan holder’s lifetime while obtaining life insurance to provide income for the surviving spouse.
There is a potential loss of income with this strategy which could be protected by purchasing life insurance. Pension maximization is typically executed early on to avoid high life insurance premiums, but it is certainly an option worth considering for some.
Life insurance can be confusing, but you don’t have to go it alone. Working with a fee-only financial planner can help you to determine which strategy is best for you and your family. Contact our team to see how you can leverage life insurance in retirement.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.