What Insurance Do I Need in Retirement?
There are plenty of risks that we think about and manage as we age. Those risks may include market declines, premature death, fire hazards or liabilities associated with driving. As we age, we also think about new risks that we may not have considered during our working years, such as longevity risk (outliving our assets) or the costs associated with long-term care.
In our experience, there are four fundamental ways to manage risk: risk avoidance, risk reduction, risk retention and risk transfer. That last method, risk transfer, is also traditionally known as “insurance.”
As you transition into retirement, you may find yourself asking the question, “Do I still need life insurance?” The answer lies in reviewing which risks you originally intended to cover with your insurance policy, and whether those risks still exist today.
Some life insurance needs can decrease or go away
Typically, life insurance is vital during your working years to protect income. This is particularly true if you have a dependent spouse or children who would experience financial hardship if your income was no longer there. Other common reasons for life insurance are to provide for business succession or estate planning purposes.
If you are financially independent in retirement and your children are grown and self-sufficient, there may no longer be a need to own life insurance for income replacement purposes. However, be aware of circumstances where life insurance could provide for ongoing income if a spouse were to die, and their pension income ended.
If a business has been sold or transitioned at retirement, then the need for insurance for business succession purposes may no longer exist.
Other life insurance needs can remain or increase
That said, it may be vitally important to retain life insurance to provide liquidity at a surviving spouse’s death if an estate is comprised of illiquid assets and subject to estate taxes. Imagine a vacation home that the surviving family members would not want to sell, for example. Additionally, life insurance can provide a solution to fund a lifetime trust for a child who has special needs.
Another reason to pause before deciding to abandon your life insurance is any change in your health status that could potentially impact your longevity. For example, if you had an elevated risk for a serious illness, or were diagnosed with something terminal, it might motivate you to maintain your coverage, knowing that a payout could occur sooner than originally expected.
Before lapsing or surrendering any life insurance policy, it’s important to understand its original intent and whether that need still exists. There may also be tax implications to surrendering permanent life insurance. As always, it’s a good idea to consult with a wealth advisor and potentially your accountant when contemplating such decisions.
The same decision process applies when considering disability income insurance, personal and professional liability insurance, long-term care insurance, homeowner’s or renter’s insurance, identity theft insurance and travel insurance. Ask yourself—why did I purchase this policy in the first place, and do risks still remain that I am better off transferring to an insurer?
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ABOUT THE AUTHOR
James Ciprich, CFP®, MBA
Jim is a Partner, Wealth Advisor and Investments Leader in our Morristown, NJ, office. Serving a broad range of clients, he has a particular focus on retirees considering care and housing options. Jim founded legacy firm RegentAtlantic’s Senior Solutions practice specialty. He is often asked to speak at retirement communities and client events and is frequently quoted in the media. Jim also serves on an advisory council to the MIT AgeLab. He holds the CERTIFIED FINANCIAL PLANNER™ certification and has an MBA and a BA in Economics from Rutgers University. He served as an adjunct professor at Fairleigh Dickinson University in the CFP® program. Jim is a past president of his local estate planning council, and he has also served as a trustee for Morristown United Methodist Church. In recent summers, he has volunteered with Appalachia Service Project. In a prior career, Jim worked in the music industry, where he was awarded multiple RIAA-certified gold and platinum albums.
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