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Ask the Retirement Expert: Should I Get Rid of My Life Insurance as I Approach Retirement?

Craig Volk, RICP® •  April 8, 2016 | Enjoying Retirement, Your Finances, Ask the Expert

Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:

By Craig Volk

In April of 2000, Craig began his career with Northwestern Mutual. As a Wealth Management Advisor and Retirement Planning Specialist, Craig’s practice focuses on an integrated planning approach involving retirement distribution planning, investment management and wealth distribution.

Should I get rid of my life insurance as I approach retirement?

Not necessarily. 

When evaluating whether to continue your life insurance policy, you first need to figure out whether you own a term or a permanent policy. A term policy typically is used only for financial protection in the case of a premature death. A permanent policy can also provide living benefits, in addition to a death benefit, which allows it to have multiple uses when it comes to your financial planning:

  • It helps protect your family financially in the case of a premature death.
  • It can be used to help supplement your retirement income.
  • It can be used to pay premiums for other insurance you may need in retirement in a tax-efficient manner.
  • And it can be used for legacy and estate planning.

Only one of those uses typically stops at retirement—financial protection in the case of a premature death. The other three may continue throughout your retirement years.

You should also consider whether you can continue to afford any premiums that would still be paid in retirement.

The reason you own life insurance may change when you reach retirement age; however, there is almost always at least one reason to own it—no matter what age and life stage you’re at.

I recommend working with a financial professional to help create a retirement distribution plan to help you meet the goals and objectives you have. Each method of utilizing permanent life insurance has advantages and disadvantages and is subject to different tax consequences. I’d encourage everyone to also consult with your tax and legal advisors about the various impacts of using your life insurance in retirement. This should allow you to discuss how and if life insurance fits your situation.

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