Boomers in Retirement: Should You Keep up Your Life Insurance Policy?

Aug 22nd, 2013 | By | Category: Senior Finances

Do You Need That Policy?

After decades of hard work, retirees welcome that time when they can finally enjoy the years of relaxation they earned. Every day for the next 16 years, approximately 10,000 Baby Boomers will reach retirement age, according to Newsmax. Some will choose to remain in the work force, but if you’re one of the ones choosing retirement, you may wonder whether or not you should hold on to that life insurance policy.

Downsizing to fit a retired lifestyle is common. These downsizing trends often include a smaller house, a simpler wardrobe and maybe fewer IRA contributions (if you decide to keep making them in the first place). You might be tempted to ditch your life insurance policy just for the monthly savings—after all, you’ve no dependents to worry about and most of your financial bases covered. Maybe a life insurance policy seems like an unnecessary expense.

Surviving Spouses & Dependents Protection

One big reason for holding onto your life insurance policy is the protection it potentially offers if something happens to you, especially if your spouse or grandchildren depend on your income. In most cases, your dependents are (hopefully) grown and out of the house, living their own lives.

However, many retirees find themselves caring for their grandchildren. In fact, U.S. News & World Report notes that over 2.9 million children were in the care of their grandparents as of 2010. If something happens to you, knowing that your charges are being taken care of by your life insurance payout may be reason enough to keep it. This also applies to your spouse.

Cash Equity

Chances are your life insurance policy has built up cash value throughout the years. Instead of letting this cash value go to waste, there are several ways you can put it to good use. For starters, you can use your cash value to make premium payments on a policy, giving you an opportunity to keep your insurance and cut your expenses at the same time.

If you still have cash equity in your life insurance policy and you face the possibility of needing long-term care in the near future, you might want to consider the addition of a long-term care rider. For instance, State Farm life insurance policies promote a flexible care benefit rider. This allows you to access a portion of your policy’s death benefit on a monthly basis, with the benefit amount used at your discretion.

Cash Value Benefits

You can also benefit from borrowing against the cash value of your policy. In this case, instead of paying the money back like a regular loan, the amount you owe plus accumulated interest is simply subtracted from the death benefit after you pass. Of course, there’s also the option of withdrawing a portion of the policy’s cash value. As long as you don’t withdraw more than what you originally paid in, your withdrawals remain tax-free.

Kenneth Cain: Ken is a data manager at an insurance company. His favorite movie is “Office Space,” and he dreams of owning his own publishing business some day.

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