Many people believe that when they reach retirement age, the need for life insurance diminishes. After all, once the kids have left home, the mortgage is paid off and Social Security and pension plans start kicking in, why pay for a life insurance benefit that’s not needed? The fact is, life insurance isn’t just for young families anymore. New economic realities mean a growing number of older Americans may benefit from incorporating life insurance into their retirement strategy.
Here are three reasons today’s retirees or pre-retirees should think twice before cutting back or eliminating their life insurance coverage.
Tougher Financial Times
Americans retiring today face a difficult economic landscape and are retiring with more debt. Nearly 45% of Americans enter retirement with a mortgage, and one in three owe $50,000 or more.1 These statistics are bound to climb, considering 30% of 45 to 54yearold boomers currently owe more on their mortgages than their homes are worth.2 Life insurance can help ensure that mortgage payments continue for a surviving spouse, or help beneficiaries pay off an unwelcome debt.
Debt and other factors also are leading more workers to anticipate delaying retirement or working for pay in retirement. According to the Employee Benefit Research Institute, the percentage of workers planning to work for pay in retirement now stands at 74%.3 Almost all retirees who worked in retirement in 2010 name at least one financial reason for doing so, including a decrease in the value of their savings or investments, difficulty making ends meet, or keeping health insurance or other benefits. Another indicator of tight economic times: six in 10 boomers are still providing financial support to their adult children, handing over $3,675 per year, on average.4 Life insurance can provide a financial safety net for surviving spouses who depended on income from a still-working spouse, or it may give adult children the boost they need to become financially independent.
Protection Against Unknowns
Life insurance can provide financial protection against the unknowns of retirement. Today, there’s a one in five chance that at least one spouse in a 65yearold couple will live to age 95.5 This increased longevity, plus other variables such as rising healthcare costs and decreasing interest rates and investment returns — not to mention the uncertainty of Social Security — leaves even the most prepared retirees without a fixed horizon for planning.
Life insurance adds a degree of certainty to retirement. With a universal life insurance policy, retirees have predictable premiums, and coverage is guaranteed for a lifetime — even if the policyholder becomes ill. The death benefit can help replace or supplement retirement income for a surviving spouse, pay off bills and settle debts, or provide financial assistance to other beneficiaries.
Wealth Transfer Made Easy
Leaving an inheritance for children and grandchildren is an important goal for many retirees, but market losses over the last few years have made a big dent in many investment portfolios. Retirees who want to rebuild their legacy quickly — or those who are just starting their legacy planning — will find a simple solution in single premium life insurance.
Depending on the age, gender and health of the retiree, single premium life insurance has the potential to double the size of a legacy in one simple step. For a healthy 65-year-old woman, a one-time life insurance premium payment of $100,000 could instantly turn into a $209,360 death benefit payout for her children.6 It would take 33 years to achieve the same result with a conservative, taxable-interest investment vehicle earning an average annual return of 3%. Plus, with single premium life, there are no investments to manage, no taxable gains to report to the IRS and no market loss concerns. There also are no income taxes for beneficiaries and no probate issues.7 Single premium life insurance can help ensure that legacies are protected and passed down hassle-free.
Retiring and soon-to-be retired baby boomers are experiencing a different economic reality than their parents and grandparents. As the boomer generation retires, it’s also time to retire the notion that life insurance is only necessary for the young.
Phil Bouvier is vice president of Life Insurance Sales at Symetra Life Insurance Company.
1 “How Housing, Credit Card Debt Have Changed Over Time,” Employee Benefit Research Institute, Fast Facts #139, Oct. 15, 2009.
2 Mark Miller, “Pay Off the Mortgage? The Retiree’s Tough Call,” Newsday (Center for Economic and Policy Research), December 26, 2009.
3 “Working for Pay in Retirement,” Employee Benefit Research Institute, Fast Fact #193, March 23, 2011.
4 John Sullivan, “Those Damn GoodforNothing Kids,” Boomer Market Advisor, February 2010.
5 Marie Rice, “Taking That First Visit,” LIMRA’s Market Facts Quarterly, p. 85, Vol. 29, No. 1, Winter 2010.
6 Quote assumes a 65-year-old woman in the non-nicotine preferred rate class, with rates as of September, 2011.
7Although proceeds of life insurance are generally received income-tax-free by beneficiaries, estate and local taxes may apply. Clients should consult their attorney or tax advisor for more information.