As couples retire and age, their thoughts often turn to giving up their life insurance. The premiums could cover other expenses. There are no longer little kids to consider. They are collecting Social Security, or soon will be. They are covered by Medicare, or will soon be. If this describes your situation, life insurance is a waste of your money, right?
Not so fast! There are a number of other issues you need to consider first.
Loss of income for the survivor
When the first spouse dies, the survivor is likely to face a loss of income, sometimes a dramatic loss. One of two Social Security checks will disappear. In many cases, the deceased spouse’s pension may terminate or be significantly reduced.
Couples often reason that the survivor’s expenses will be less. That may be true to some extent. But even if the survivor is living in a home that used to be occupied by two, home expenses remain fixed. There are maintenance fees, homeowners insurance, property taxes, HOA fees. Plus, as the the survivor grows older, he/she will probably need more help to keep up the house.
Many couples anticipate that their expenses will decrease in retirement, and the surviving spouse will have enough income to get along. Even with everything we know about the cost of medical care, they simply cannot imagine the astronomical impact that medical expenses can have on the survivor’s income. According to Fidelity, the average 65-year-old woman who retires this year will face $157,000 in medical expenses going forward. The average 65-year-old man, $143,000.
It is a common misconception that once on Medicare, the financial burden for medical care is gone. Not so: Even Medicare is costly. Yes, Part A will cover a portion of your hospital bills. But you will also need to pay for a Plan B, which covers outpatient care. You’ll probably want a Medicare Part D plan to help with your pharmaceutical expenses. You will have deductibles and co-pays. And you will need to pay out-of-pocket for essential health-related items Medicare does not cover, including eyeglasses, hearing aids, dental care, and the one expense that most terrifies our clients: long-term nursing care. The annual cost for a private room in a facility in Florida is now slightly over $117,000. No one should fool themselves that these costs are going in any direction other than up, up, up.
Maybe you want to leave something to the kids?
Some clients are determined to leave something to their children. Some continue denying themselves, scrimping and saving to conserve their assets for their kids. If one of your goals is to leave money to the children, keeping your life insurance policy can be a smart move. It ensures their inheritance while allowing you to enjoy a little more comfort in your own life without constantly worrying that you’re frittering away their inheritance.
Hybrid life insurance policies
Also, as we’ve mentioned in prior posts, some life insurance policies, depending on their cash value and other terms, can be converted into hybrid policies that also cover long-term care expenses. For many couples and singles as well, this can be the best of both worlds. (See a prior post for more information about hybrid policies.)
Stop the payments
Let’s say that you feel that with the loss of salary from your job, you can no longer afford the premiums for your life insurance and still maintain your lifestyle. You may have other options besides cashing in the policy. You may be able to stop the payments and reduce the death benefits to a lower amount. Alternatively, you may be able to take the cash value of your existing policy and convert it to a new, single-premium policy and get an even higher death benefit.
The benefits of life insurance do not necessarily end when you retire. It can plug a big gap in the surviving spouse’s finances and solve other problems, too. Discuss these issues with your attorney as you plan your estate. Contact our office for assistance. If you want a referral to an insurance professional, we can offer suggestions. Reach us at (561) 625-1100.