Revisit Your Life Insurance Coverage Before You Retire
Given the state of the economy and the threat of Medicare and Social Security cuts, “retirement” has unfortunately become the new dreaded dirty word in households.
While plans to cut expenses are being discussed far earlier than retirement in today’s world, the expense-cutting is permanent within the context of a retirement discussion.
One area in which to consider cutting expenses is your life insurance premium. Life insurance is often purchased when the covered individual is younger, with a large enough death benefit to cover one’s family, mortgage, estate taxes (where applicable) and other areas should the covered individual pass on.
At retirement, however, that same covered individual may not need to be concerned about leaving money to send children to college or to pay off his or her mortgage. As a result, there may be room to lower one’s premium in exchange for a change in coverage.
Rather than get a new policy — which may result in higher premiums if you go through the underwriting process again — consider the following 3 ways to potentially lower your premiums on your existing policy:
1. 1035 Exchange: If your policy has cash value, discuss with your advisor transferring that cash value into an alternative life insurance policy with potentially lower premiums.
2. Inquire about Flexible Premiums: Obtain an illustration from your advisor or agent with a reduced death benefit or the maximum tax-free cash flow that may be obtained without requiring more premium to support you past your life expectancy.
3. Change Your Financial Plan: Discuss changing your policy’s role in your overall financial plan with your advisor. For example, consider using a cash value policy as a tax-deferred savings vehicle, a low interest loan source, or tax-advantaged cash flow source.
As with all changes to your insurance policy contributions, make sure you have a discussion with your advisor or insurance agent and receive an illustration first (for example, so that you don’t inadvertently turn your policy into a Modified Endowment Contract or MEC, and incur taxes and penalties on withdrawls).
With the right moves, retirement may not stay a dirty word for long.
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