While employed, life insurance is an additional benefit typically provided at no-cost to the employee. Of course, with no out-of-pocket costs, the benefit of having life insurance is a no-brainer. Once an employee hits retirement, they face the costs of an individual policy leaving many to think canceling their policy is the best option. However, before canceling a life insurance policy there are several things to consider.
Do you have children?
While canceling your life insurance is beneficial for your out-of-pocket costs, it may be detrimental to the future of any heirs. If you have a smaller estate, having life insurance after your death could even out the distribution of your estate to your children, providing a more substantial cushion. Since the death benefits of life insurance post-retirement are tax-free, heirs will be able to utilize your savings to cover any remaining debts and the expensive costs of funeral, probate and executor fees.
Are you still paying off a mortgage?
As of 2016, 23% of head of households with a mortgage debt were over the age of 75. In comparison, in 1989, only 5.8% were that age. With the likelihood that you may be paying off your mortgage post-retirement, your children and/or spouse could be responsible for the remainder of your debt. Life insurance could cover the costs of any remaining mortgage that your heirs may not be able to afford.
Are you and your spouse in good health?
It’s critical to consider what condition your health is in post-retirement. If you or your spouse has a pre-existing condition, options like long-term care insurance won’t be an option. Keeping your life insurance can cover the costs of in-home care or a nursing home for an individual when long-term care insurance isn’t an option.
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Do you have a favorite charity?
For someone looking to leave an endowment or legacy post-retirement, having life insurance can leave your favorite charity or organization to benefit. If you plan on leaving a legacy and name a specific charity as a beneficiary, you can receive tax breaks since it’s not considered part of your estate.