Contents
Should You Retire?
Can You Afford to Retire?
Retirement Money Management
Retirement Health Insurance
Life Insurance and Retirement
Housing and Retirement
Retirement and Your Social Life
Mental Activity and Retirement
Travel During Retirement
Working During Retirement
Retirement Health
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Life Insurance and Retirement
Life insurance provides beneficiaries with a lump-sum cash payment, known as a death benefit, upon the policy-holder’s death. The traditional purpose of life insurance is to make sure that your family is provided for in the event of your untimely death. For retirees, life insurance is more commonly used to create a tax-advantaged estate for the policyholder’s survivors, regardless of whether the policyholder’s death occurs unexpectedly or prematurely.
Types of Life Insurance
There are two main types of life insurance: term and permanent (also known as cash value insurance).
- Term life insurance: Term life insurance provides a death benefit, but only for a specific term, or period of time. If you die within the term, the policy pays out the death benefit to your beneficiaries. If you survive the term, you must reapply to continue coverage.
- Permanent life insurance: Permanent life insurance has no specified term and provides guaranteed coverage until death. Some policies allow the policyholder to receive annual cash dividends or invest the death benefit in order to grow its value.
For the purposes of creating a trust, permanent life insurance is generally the better choice.
How to Create an Estate with Life Insurance
As a retiree, the main reason to buy or hold life insurance is to use it to create an estate for your heirs. The key to using life insurance in this way is to hold the insurance within an irrevocable trust, a legal identity that is not held in your name. If you hold the policy in a trust, rather than in your own name, the benefit from the policy is not subject to the taxes that will be levied on your estate upon your death. (For more details on how to create a trust, and other ways to protect your estate from taxes, see the Quamut guide to Estate Planning, available in Barnes & Noble bookstores and online at www.quamut.com.)
How to Cover Debts with Life Insurance
The only other reason to buy or hold a life insurance policy during retirement would be if you believe that, upon your death, your estate won’t have the assets to cover outstanding mortgages or debts, or the expenses required to liquidate your estate and cover your funeral arrangements. Most retirees don’t need life insurance for this reason, as their estates are funded enough to cover these expenses.
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