Life Insurance After Retirement?

[Tree-dweller]

Greetings! I have a group universal life policy worth about $400k through my current empl*yer. Monthly premiums after retirement if I choose to maintain it are high, I think - about $110 month. One financial advisor suggested I give it up when I leave w*rk, since our pensions and savings will cover wife and I comfortably. I tend to agree with him. I'm retiring later this year at 58, and the kids are grown, on their own. How do others feel about carrying life insurance after retirement?

 

[frayne]

I carried term life through my working years with my employer but after I retired I dropped it and see no need for it now.

 

[REWahoo]

I carried term life through my working years with my employer but after I retired I dropped it and see no need for it now.

+1

If you are FI - and your spouse will be FI if you go first - no need for life insurance.

 

[JOHNNIE36]

Same thing after I retired. Premiums started going up along with my age and we decided that we were in good enough shape financially that DW didn't need a windfall when I passed away. I now have just $25K paid for by the company and it will stay at that level.

 

[meierlde]

I would agree if there is enough other assets to bury you and your wife (or consider prepayment for that service). Note that as I understand it prepayed funerals don't count against medicaid limits either.

 

[JakeBrake]

I carried term life through my working years with my employer but after I retired I dropped it and see no need for it now.

+2 However, my former employer will pay an amount equal to my last year's salary to my survivors at my demise. I make sure the information about how to collect this is prominently displayed in my "If I Should Drop Dead Documents".

 

[Nords]

Greetings! I have a group universal life policy worth about $400k through my current empl*yer. Monthly premiums after retirement if I choose to maintain it are high, I think - about $110 month. One financial advisor suggested I give it up when I leave w*rk, since our pensions and savings will cover wife and I comfortably. I tend to agree with him. I'm retiring later this year at 58, and the kids are grown, on their own. How do others feel about carrying life insurance after retirement?

Life insurance is supposed to replace lost income or to help with estate planning.

If your retirement income doesn't depend on you being alive, then you don't need life insurance. If you really wanted to add in a support buffer for your ER finances then you could try to set aside that $110/month in a money-market account or some other investment.

If part of your retirement income depends on your being alive (pension), then instead of life insurance you might do better with some sort of survivor benefits insurance.

As an estate planning tool, you're usually planning to pay less in premiums to maintain the policy than you'd pay in taxes after you're gone.

When spouse and I retired, we not only canceled our life insurance policies but also decided not to purchase survivor benefits. The loss of one our pensions wouldn't make a difference to the other person's lifestyle, and we'd rather do things together with the money we're saving on survivor benefits premiums.

 

[Alan]

Greetings! I have a group universal life policy worth about $400k through my current empl*yer. Monthly premiums after retirement if I choose to maintain it are high, I think - about $110 month. One financial advisor suggested I give it up when I leave w*rk, since our pensions and savings will cover wife and I comfortably. I tend to agree with him. I'm retiring later this year at 58, and the kids are grown, on their own. How do others feel about carrying life insurance after retirement?

If you agree with the line I bolded then there is no need to spend $1,320/year on life insurance.

 

[mathjak107]

life insurance can be a great way for taking forever taxable ira money and turning it into never taxable leveraged money.

if i leave my wife a million bucks in taxable ira's there is a mortgage in effect due on that money in taxes only unlike our house we have no idea how much uncle sam will take.
but if i use some of that ira money to pay the premiums on an equal value in life insurance my wife gets 100% never taxable money and odds are it will be leveraged too. ill probley pay much less for the insurance than it will pay. insurance companies count on you not continuing life insurance into old age so the rates are really in your favor at that age . if everyone did it rates would have to be double what they are.

soooo instead of leaving my wife a tax infested bunch of ira money with rmd's i leave her a nice clean pile of tax free money.

whatever is left in the ira's can go to my kids where they can pay the taxes over a lifetime .

there are uses for life insurance,annuities etc only conventional thinking precludes us from thinking outside the box.

 

[Alan]

life insurance can be a great way for taking forever taxable ira money and turning it into never taxable leveraged money.

if i leave my wife a million bucks in taxable ira's there is a mortgage in effect due on that money in taxes only unlike our house we have no idea how much uncle sam will take.
but if i use some of that ira money to pay the premiums on an equal value in life insurance my wife gets 100% never taxable money and odds are it will be leveraged too. ill probley pay much less for the insurance than it will pay. insurance companies count on you not continuing life insurance into old age so the rates are really in your favor at that age . if everyone did it rates would have to be double what they are.

soooo instead of leaving my wife a tax infested bunch of ira money with rmd's i leave her a nice clean pile of tax free money.

whatever is left in the ira's can go to my kids where they can pay the taxes over a lifetime .

there are uses for life insurance,annuities etc on ly conventional thinking precludes us from thinking outside the box.

Interesting thought. Are you saying that you can take money out of an IRA and pay into a life insurance policy without paying tax on the withdrawals?

I've always thought that life insurance premiums are paid with after tax money. The life insurance I carried 'free' through my employer used to result in showing as extra income each paycheck and being taxed as such.

 

[mathjak107]

Interesting thought. Are you saying that you can take money out of an IRA and pay into a life insurance policy without paying tax on the withdrawals?

I've always thought that life insurance premiums are paid with after tax money. The life insurance I carried 'free' through my employer used to result in showing as extra income each paycheck and being taxed as such.

you do pay the tax on the money when you take it out of the ira but the policies around retirement age are pretty leveraged. especially if you buy a SPL policy. first of all you get to buy it at todays low tax rates and best of all odds are your wife will collect far more than you paid in. thats the beauty of it. its the leveraging of your payment that makes it work.

you get to screw uncle sam even more as now your kids inheirit whats left of the ira money and have a lifetime to pay the taxes instead of your wife having to take rmds from the money at a far greater rate.

 

[Alan]

you do pay the tax on the money when you take it out of the ira but the policies around retirement age are pretty leveraged. especially if you buy a SPL policy. first of all you get to buy it at todays low tax rates and best of all odds are your wife will collect far more than you paid in. thats the beauty of it.

you get to screw uncle sam even more as now your kids inheirit whats left of the ira money and have a lifetime to pay the taxes instead of your wife having to take rmds from the money at a far greater rate.

Understood, particularly if the wife is a lot younger.

 

[mathjak107]

works even better the younger the wife. heck i figure ill be canvasing the college for my next one ha ha ha ha ......

although dont forget the older your wife the greater the rmd's will be she has to take so i guess its a win/win regardless of age.

 

[chinaco]

Before you drop it, you need to really think about how it might be used and how it might fit into your plan!

If you are unsure and it will take time to figure it out, you can always keep the policy after you retire and let it lapse later if you determine you do not need it. It may cost you a few hundred bucks... but that is better than making a poor decision quickly and regretting it later.

Universal Life is permanent insurance (unlike term)... should not end as long as you pay the premium. Verify that that the policy is permanent.


Will the premium go up or stay level at $110. It is level premium for life?
What are the provisions for the policy? Can you increase the face amount or add riders (without underwriting)? Any special features that are worthwhile other than death benefit?


You are are covered now and do not have to go through underwriting and your are 58 years old. Could you even buy a term policy for $400k for $110/mo. Are you in perfect health? Even then the term would expire.

See what it would cost for you to buy life insurance today. Since you already own it.... it is a slightly different than considering if you would buy one if you did not have it. I won't go into it. But do not off the cuff consider the policy to be a sunk cost... it has value. This is one way to understand the value.

https://www.quickquote.com/


$110/mo for $400k looks cheap based on a quick quote I got... a quote for a 58 year old in perfect health, perfect weight, no tobacco, etc... from two companies was $2700/yr and $4000/yr. And that was for term insurance that would expire in 30 years. Do a quote so you have some frame of reference.

Next think about the "Do you need it" part of the problem. Think about unexpected life events that might happen that deplete your money. Also think about estate planning and your survivor (e.g., DW).

You need to think outside of the box for a minute. A few questions about your situation and how that policy might help you and your DW in the context of your overall plan. Think about how this money might be used by your DW or Estate upon your death. Do not just rely on what some adviser tells you... Think about it!

You have two basic scenarios. Everything goes great as planned (no money problems). OR! Everything goes to h3ll for your finances, and you die, now your DW is left to pick up the pieces financially... now what!

1. Are you rich... do you have a large amount of excess assete? In other words assets (not including home) of over $5M? Do you have enough money to carry you though any kind of crisis or is something goes wrong and you experience some huge unforeseen expenses? Eventually you will die and the survivor (DW if you are married )would have access to the funds. Are you sure a $400k tax free cash infusion to a beneficiary (e.g., DW) upon your death will not help out?
2. Did your company make any sort of life insurance provision available to cover your wife?
3. Do you have Long-term care insurance? If not, you need to do a LTC plan for you and your DW. But, if you are not insurable, that life policy could replace funds spent on your LTC and provide your DW with money to live on after your death.
4. If you have pensions and/or SS and assuming they are available to your DW upon your death... often the payout is reduced. The proceeds from that life policy could fill the gap for your DW.
5. If you intend to leave an estate (for some planned amount...say $1MM). You could keep the policy in force and consider spending more money out of your savings... and leave the benefit to the heir that would inherit the estate.
6. Any other scenarios you can think of where money is depleted on purpose or by crisis while you are alive and that money needs to be replaced.

But, a consider a Male at 58 . If the premium is $110/mo (level) that is a premium of $1320/yr. Lets say that 58 yo male lives till 88 ( 30 more years which would mean living longer than a 58 yo male's life expectancy). 30 yr x $1320 = $39.6k so for $39.6k spread over the next 30 year, the beneficiary will get $400k.

You should do a more sophisticated analysis... But you need to also consider the time value of money, conservative investment returns, inflation, your mortality and the fact that the cash flow is restricted to the event of your death.

 

[rescueme]

I keep a (term) policy on my life, for the benefit of DW/DS.

While my assets will go to my wife (and vice versa), taxes are not a concern in that situation. However at our current gross remainder estate, we do run into problems with our holdings when we're both gone, and the liquidated estate proceeeds will flow into a trust for our (disabled) son. With the games currently being played with estate taxes, we rather spend a few dollars on term life to pay the possible taxes that may come due. And if not, the policy proceeds will just be added to the trust.

Secondly, while DW is aware of our retirement/other assets, she does not participate in day-to-day management of our joint portfolio. The idea of having a policy is to provide her tax free "instant cash" that will allow her to continue to live in the manner she's become accustomed, without having to make any sudden investment decisions and allow her "breathing room" to become more engaged in the process - where she will be the primary decision maker.

Just the two reasons that I/we still maintain a policy in retirement. I understand that for most folks, these conditions do not apply and I would side with those that say it's generally not needed since normally life insurance is to cover loss of income - a condition you don't have in retirement (unless you are wor*ing - in that case you are not retired).

 

[73ss454]

Interesting thoughts, I'm holding a whole life policy for 500K on myself. The premium is $6850 a year and at this point I'm 62. I've held it for about 24 years now and was thinking of cashing it in, cash value is 179K at this point. The policy throws off about $5200 towards the premium so I'm taking approx $1600 a year out of my pocket and my out of pocket goes lower each year. I know I shouldn't have bought the policy but that's old news so I want to make the right decision at this point. My other thought is that instead of LTC ins. DW and I can use the policy to cover the costs of LTC if we need it.

My thought is that if I need LTC when I'm gone DW will have 500K to make her whole. If DW needs LTC, and if she dies before me I can cash in the policy to make me whole or purchase a SPIA to get some income.

What do you guys think of this plan? I know it's not perfect but it is a plan of sorts.

 

[Tree-dweller]

Whew! Thanks to all. I believe the "think outside the box" and "don't make any snap decisions" approaches combine well and the way I'll go near-term. I have that luxury. Great food for thought.

 

[rescueme]

My thought is that if I need LTC when I'm gone DW will have 500K to make her whole. If DW needs LTC, and if she dies before me I can cash in the policy to make me whole or purchase a SPIA to get some income.

What do you guys think of this plan? I know it's not perfect but it is a plan of sorts.

Of course it's a plan, based upon things that "might happen". If it makes sense to you, that's all that matters.

In our case, the LTC is "self-funded", based upon a recommendation from our (elder law) attorney, who has long term experience as related to end-of-life/estate issues and based upon our current assets.

However, in your case (if it happens), it makes sense since your joint assets/portfolio will have a drawdown based upon your end-of-life care.

Since you did consider both sides of the coin (e.g. your end-of-life, and DW's end-of-life), it makes sense - at least to me.

Insurance is a tricky thing, be it a life insurance policy or an annuity (more specifically an SPIA, which is still an insurance vehicle).

You roll the dice and you hope for the best. There is no such thing as "you must" or "you should" answer in these questions, IMHO.

 

[kcowan]

Life insurance is supposed to replace lost income or to help with estate planning.
...
When spouse and I retired, we not only canceled our life insurance policies but also decided not to purchase survivor benefits. The loss of one our pensions wouldn't make a difference to the other person's lifestyle, and we'd rather do things together with the money we're saving on survivor benefits premiums.

In our case I cancelled all the policies and maintained just enough to replace my pension income. That is probably more than we need but it is also an investment and tax avoidance plan.

 

[ERD50]

insurance companies count on you not continuing life insurance into old age so the rates are really in your favor at that age . if everyone did it rates would have to be double what they are.

I understand that some (many?) people drop the policy early, and this benefits the ins co. In turn, the ins co can charge less and still make a profit.

But does it hold that ins is a good investment for those who hold it to the end (well, good for their estate)? Seems that whenever I looked into this, it didn't look very good. I think it would be discussed more here if it was a viable option.

-ERD50

 

[chinaco]

One point that needs to be made.... Life insurance is not a direct replacement for LTC insurance. In certain LTC scenarios, assuming one has adequate funding to pay for LTC out of pocket, it might be an effective way to replenish funds that were spent on LTC. However, a life insurance policy typically only pays at death. If one recovers and lives... those life funds would not be available until death.

We have LTCi and intend to keep it.

We do not have life insurance (other than that provided by my employer's group plan). When I stop working, I am no longer covered.

Since DW and I have adequate assets (portfolio, pension, SSx2)... I have not been considering buying a policy.

I have spent some time thinking about it and could not come up with an obvious reason to buy a policy. But I should probably think about it a little more. DW and I are both healthy, mid 50's and insurable. If our health status changes, we probably could not buy a policy for a reasonable premium.


The problem with term insurance, is the limited term. Some companies sell 30 year policies... but if one lives longer than 30 years from purchase, it is not going to work for estate planning.

Permanent insurance seems more expensive. Some of the convertible term policies might work ok. But it would be important to get one that would be cost effective (i.e., the premium for the converted policy does not cost a fortune) and not require one to go through underwriting again and possibly be rated. Knowing how insurance companies are about their risk, this type of policy might not be available.

 

[rescueme]

but if one lives longer than 30 years from purchase, it is not going to work for estate planning.

Sure it does. You don't have to be old to have a substantial estate. It stil is part of estate planning if you die earlier (and that's the primary role of insurance, is it not?)...

 

[73ss454]

Chinaco, with Whole Life one could still cancel the LI and take the benefit if one lives after a stay in LTC. So, in our case we would be able to cancel the policy and take the cash or use a SPIA.

This would all be easy if I knew what the future held and how it would play out.

 

[mathjak107]

I understand that some (many?) people drop the policy early, and this benefits the ins co. In turn, the ins co can charge less and still make a profit.

But does it hold that ins is a good investment for those who hold it to the end (well, good for their estate)? Seems that whenever I looked into this, it didn't look very good. I think it would be discussed more here if it was a viable option.

-ERD50

insurance is never a good investment. but its a wonderful wealth passing technique . in this case your not doing it as an investment. you already did your investing and made your money.

now you need a way to try to make money thats forever taxable and trade it for money thats never taxable.

we do that by using a spl policy...

 

[mickeyd]

I no longer have any LI on myself as the kids are out of the nest and our savings total more than any LI that we may need.

DW still has a couple of old WL policies that we plan on cashing in eventually. We use the annual dividends to pay the premium on both policies so they just continue to grow.

Since the cash value is now more than she has paid, we will have to pay income tax on the difference eventually so I'm not in a hurry to take action yet.