As retirement age approaches, it’s usually a good time to reassess your life insurance policies to see if your needs have changed. With your children on their own and no earned income to replace, you may no longer need a large life insurance policy. Especially if your insurance premiums are high, you may be tempted to cancel the policy, take the cash surrender value, and enjoy retirement. Before doing that, however, make sure there aren’t other uses for your life insurance policy, such as:
- To leave a legacy to heirs — Even if the money isn’t needed for your children’s support after your death, many people like the thought of leaving a large inheritance to their children or grandchildren. With an insurance policy in place, you can feel free to spend your retirement assets, knowing the insurance policy proceeds will be paid to your beneficiaries after your death. If you have a large estate, the policy proceeds can be used to help pay estate taxes.
- To pay your grandchildren’s college expenses — With the rapidly increasing costs of college making it more and more difficult for parents to cover this cost, you might want to use an insurance policy as a college fund for your grandchildren. If you’re still alive when they start college, you might be able to borrow some of the cash surrender value to pay these costs.
- To support adult children — There are a variety of reasons you might want to provide financial help to an adult child. Perhaps your child is a doctor, but has significant debt from college. Or your child might have a job that doesn’t pay a significant amount of money.
- To provide a large charitable contribution — A life insurance policy can serve a couple of purposes when making a large charitable contribution. You can name the charity as the beneficiary of the policy. Or you can leave other assets to the charity that would have been included in your estate and possibly subject to estate taxes. The proceeds of the life insurance policy, if properly structured, can then be paid to your heirs estate- and income-tax free.
- To optimize pension benefits — When retiring, irrevocable decisions about pension plan benefit payments must typically be made. An individual life income potion will pay higher benefits than a joint and survivor benefit, but your spouse will not have pension benefits if you predecease him/her. You could use the proceeds from a life insurance policy as a source of income for your spouse after your death.