A life insurance payout can help your loved ones cope with final expenses, outstanding debt, and cover any lost income that you may have been providing. Recent retirees may be newly aware that your employer-provided life insurance policy expired when your employment ended—along with the benefits you had earmarked for loved ones. If you do wish to continue providing a death benefit for your beneficiaries, understanding your options for a separate life insurance policy will enable you to choose a plan that makes sense for you. Below, Eastern Insurance Group offers some general information to help you understand and assess your life insurance alternatives. For specific advice, you should contact your insurance agent, estate planner, and/or tax advisor.
What to consider when selecting a policy
When shopping for life insurance, all retirees and those nearing retirement age should consider how long your coverage needs to last, how much it will pay out when you die, whether you want to use the policy as an additional investment plan, and whether the premiums are affordable.
Premiums for all policy types will be significantly more costly for retirees compared to younger plan participants so get ready for significant sticker shock. However, policies that are affordable within most budgets do exist and with the advice of an insurance professional can be found and put to work for you. In broad strokes, life insurance policies bifurcate into two channels—cash value, (or “permanent”) insurance plans and term insurance plans.
Cash Value—or “Permanent” Plans
Cash value or permanent life insurance is more expensive than term life insurance
because it not only offers a death benefit payout but also presents the potential for
additional cash value. The death benefit, of course, is money that's paid to your beneficiaries when you pass away. The potential cash value is a separate savings component that you may be able to access while you're still alive, depending on specific plan provisions. Permanent cash value life insurance lasts from the time you buy a policy to the time you pass away provided you pay the required premiums. Within this channel there are three sub-categories—whole, universal, and variable cash value plans—that determine the strategy behind how any cash you may ultimately accrue in the plan will be invested and distributed.
Cash value plans are desirable for people who want to use their life insurance plan to do more than payout death benefits for beneficiaries. These permanent plans should be considered by anyone who may wish to access the cash value accrued in their plans during their lifetime while also protecting the loved ones who survive them. Many permanent life insurance policy holders use accrued funds during emergency situations. Some plans even allow policy holders to take out loans against the policy’s accrued cash value.
Term Life Policies
Term life policies provide coverage for specific periods of time, sometimes as little as one year. Most term life policies are renewable at the end of the term even if your health has changed though renewal premiums may skyrocket if you get sick during the original term year. Renewable term life plans may extend coverage for terms of 5,10, maybe even 15 years—helping stabilize and spread out costs—but as you age, the maximum term period you’ll be eligible for typically decreases. Some term life insurance policies offer fixed premiums and death benefits, helping to prevent the potentially devastating impact of an unexpected increase in premium rates.
Term life is often considered the least expensive life insurance option and should be considered by anyone interested in providing affordable protection for their beneficiaries and who are not seeking additional cash value from the plan. Term life may be useful for people seeking to cover a particular expense that will continue after they pass away, such as a mortgage or business loan.
Selecting term length for a term life insurance policy
If you decide to purchase a term life insurance plan, you’ll be presented with term length options, depending on your eligibility. To understand how to calculate the term that’s right for you, consider the following example. If you are buying life insurance during retirement because you want to cover the remaining balance on a 20-year mortgage you originated 10 years ago, selecting a 10-year term of coverage would make sense. By doing so, you’re ensuring that even if you die before the end of the 10-year term, you’ll leave enough funds to pay off the mortgage.
How to select a coverage amount
You won't need to worry about expenses after you die but your survivors—especially those who relied on you financially—almost certainly will. The actual amount of coverage you choose will be personal. You will want it to be affordable and considered in the context of survivor need as well as your overall savings, investments, properties, and other assets, the value of which all may dwindle significantly as you age, depending on your lifestyle and health.
Not ready to retire, just building a long-term investment strategy?
Life insurance can be an extremely powerful building block within a broader financial strategy. Convertible term life plans offer the lowest cost and highest death benefit options in term insurance and are a great choice for younger people who can't afford permanent coverage but need a large death benefit with the option to convert to a permanent policy down the road.
Call your Eastern Insurance Advisor Today
Whether you are a retiree evaluating life insurance vehicles before choosing the one that’s right for you, or a younger investor exploring the role that a life insurance policy can play in a successful long-term investment strategy, call an Eastern Insurance Advisor today. We will listen carefully to your particular goals and then provide you with the information you need to evaluate and choose the life insurance plan that makes sense for you. Call us today at 800-333-7234 or send an email to [email protected].