Life Insurance Questions to Ask During Retirement Planning

As you approach retirement, you’ve likely considered whether you have enough savings, developed an efficient withdrawal strategy, and thought about travel and hobbies you’ll pursue in your next chapter. Another crucial component of retirement planning is evaluating life insurance as your finances and priorities change. If you’ve yet to secure a life insurance policy or need to update your existing one, there are key questions to address. Integrating these considerations into your retirement planning strategy can help give you peace of mind that your loved ones will be financially secure. Let’s discuss the features of life insurance and the essential questions to ask as you near retirement.

What Is Life Insurance?

Life insurance is an agreement between you and an insurance provider in which you make payments or premiums, and in return the provider will pay a set amount, known as a death benefit, to your chosen beneficiaries upon your death. Some policies also offer benefits while you’re still alive. Life insurance can be a safety net, providing financial assistance and stability to surviving family members and dependents, such as helping to cover funeral costs, outstanding debts, and everyday expenses during a challenging time.

There are various forms of life insurance, such as term, whole, and universal life, each with distinct benefits and features. It’s critical to discuss your situation, concerns, and priorities with an insurance professional to explore and understand your options.

Why Is Life Insurance Important During Retirement Planning?

As you approach retirement, age, medical concerns, and the priority of providing a secure future for your dependents take on greater significance. Here are other reasons why it’s important:

• Health Issues and Death: As you age, planning for medical issues and death becomes more imminent. Life insurance provides financial stability to your loved ones, helping to ease the financial impact in the event of your absence.
• Security for Family and Dependents: Your loved ones may still rely on you financially in retirement. Life insurance can bridge the gap between what a family needs for a successful retirement and the income lost if an earner passes away. It helps replace lost income so the surviving family members may avoid financial distress.
• Final Expenses: Your death benefit can help pay expenses related to your funeral or other end-of-life costs, such as paying off outstanding debts like medical bills, a mortgage, credit cards, and more, so your loved ones don’t inherit them.
• Estate Planning: A life insurance payout can also provide liquidity to cover estate taxes if the estate is large enough to be exposed to them. Life insurance as liquidity helps heirs avoid selling other assets, such as real estate, to satisfy estate taxes. It can also be a tool to equally distribute the value of inseparable assets, such as art, helping to provide a smooth transfer of wealth. 
• Medical Expenses and Long-Term Care Assistance: Some life insurance policies exist that accumulate a cash value over time. These policies, which often include a rider or provision, allow holders to access funds while still living to cover medical costs, assisted living, and other long-term care expenses that may be particularly relevant in retirement. 

How Soon Do I Need Life Insurance in Retirement?

Life insurance is a critical component of any comprehensive financial plan. Typically, the sooner you get a life insurance policy, the better; here are a few reasons why:

• Peace of Mind: The sooner you have a life insurance policy, the sooner you can have peace of mind that your loved ones will be protected no matter what happens in life, such as your untimely death.
• Dependent Security: Ideally, you should think about getting life insurance as soon as you have people who depend on your income financially, such as a spouse or partner, children, or even aging parents. A life insurance payout can help them continue to meet their needs even after you’re gone.
• Lower Premiums: When calculating premium costs, providers typically consider your health, age, and other lifestyle factors. Securing a lower insurance rate while you’re young, healthy, and free of medical issues can provide significant savings in the long run.

Waiting too long to secure life insurance may leave your loved ones financially vulnerable, result in higher premiums, or even make it difficult to obtain insurance, especially if you’re navigating new health issues.

How Do I Know If I Have Enough Life Insurance?

Several factors go into calculating your ideal life insurance amount, making needs unique to each holder and family. Among others, here are some questions you can discuss to ensure you can bridge the gap if your income is lost:

• Do you still have an outstanding mortgage or other debts?
• Do you intend to cover higher education costs for your dependents, and at what level?
• How much income does your spouse or partner earn?
• Could your estate be subject to estate taxes?
• Which entity type will hold your insurance? Will it be an individual, revocable, or special life insurance trust (ILIT)? Each titling choice has different costs and benefits.

Which Life Insurance Policy Should I Choose?

Choosing the right policy to suit your family’s needs is unique to everyone and depends on various factors. While we at CCMI do not sell life insurance, we can help you and your family evaluate your current and future income and expenses and test different scenarios to discover how much life insurance coverage you’ll need at various ages. With these insights, we can formulate an ideal life insurance amount, policy type, and duration required to address a gap in income and the family’s liquidity needs. When you’ve identified the proper type of coverage, a life insurance broker or agent can assist you in choosing a policy that fits your needs and budget.

How Often Should I Update My Life Insurance Policy?

Regular insurance policy reviews should be part of your overall financial planning strategy. If your income and expenses don’t fluctuate much from year to year, reviewing your policy and making necessary changes every few years is sufficient. Here are other considerations for when you should review your policy or make updates:

• Changes in Income or Expenses: If your income and expenses, such as debt obligations, change significantly from year to year, you should review your policy and make necessary changes at least annually.
• New Family Members or Dependents: You should review and update your policy anytime you add a new family member or begin covering expenses for new dependents, such as aging parents.
• Multiple Policies and End-of-Term Dates: As your policy nears the end of its term is another good time to review, update, or convert it to better suit your needs — for example, switching from a term to a whole-life policy. Additionally, if you have multiple policies or complex life insurance coverage, you should review your policies regularly to ensure you don’t miss any important dates or requirements.

Life Insurance and Retirement Planning: How CCMI Can Help

Well-rounded financial planning evolves with your life, and life insurance is critical to the ongoing process. As you approach retirement, identifying what insurance you and your family might need can be complex; here’s how we can help:

• • Total Financial View: We help you address every aspect of your financial life, including your insurance needs. This begins with assessing your current and projected income and expenses to better understand your situation, priorities, and concerns.
  • Forecasting: Together, we’ll explore various scenarios to calculate how much insurance you may need at different phases and ages in retirement.
  • Personalized Recommendations: Considering your family’s circumstances and goals, we can help you determine an ideal insurance amount, policy type, and appropriate duration to address income gaps and your family’s liquidity needs.
  • Collaboration with Your Professional: While we don’t sell insurance, we will work alongside your insurance professional to find a policy that addresses your unique needs.
  • Insurance Strategy: Upon monitoring your needs over time, we can also help you strategize how to use your life insurance to meet unexpected needs or guide your heirs through covering various expenses, such as estate taxes and funeral costs, upon your death.

Contact us to learn how we can help you make informed decisions about life insurance as part of your comprehensive retirement plan for a secure and financially stable future.