In the 5 years before and after retirement, evaluating clients’ long term care insurance needs may be on every advisor’s retirement planning checklist, but evaluating life insurance needs may not be. The life insurance should be there, though.
In fact, looking at both sets of needs should be an integral part of the retirement planning process. Here’s why.
People often purchase life insurance to manage income replacement needs associated with parental obligations, like paying for college. True, such obligations may no longer be critical in the 10-year period examined here, but the need for life insurance may still remain.
As individuals live longer, especially women, the need to supplement lifetime income is growing in importance. For married couples age 65, there is a 72% chance one spouse will live to age 85, according to a June 2006 Prudential study. A life policy can help supplement income for the surviving spouse.
For example, although the surviving spouse will be able to continue receiving the higher Social Security benefit of the two, the lesser benefit will end. Furthermore, some who were receiving a defined benefit pension payout may see that payment reduced in half upon the spouse’s death, depending on the payment option the couple chose when benefit payments began.
This overall reduction in household income could adversely affect the standard of living of the surviving spouse. Life insurance is a way to bridge that gap and ensure the surviving spouse is not forced to downsize home or lifestyle.
There are many other reasons why individual life insurance needs might continue during retirement (see list).
Those who previously purchased life insurance but no longer have any clearly identifiable life insurance need should consider current and future needs before canceling or surrendering the policy.