There are plenty of risks that we need to think about and manage as we age. Those risks may include market declines, premature death, fire hazards or liabilities associated with driving. As we age, we also think about new risks that we may not have considered during our working years, such as longevity risk (outliving our assets) or the costs associated with long term care.
As a former CFP® instructor, I taught prospective planners on the four fundamental ways to manage risk. They include risk avoidance, risk reduction, risk retention and risk transfer. That last method, risk transfer, is also traditionally known as “insurance.”
Often as my clients transition into retirement, they ask the question – “Do I still need this?” when it comes to policies that they continue to pay premiums on. In this series of blogs, we’ll consider different insurance policies you may own, and how you should think about them as you look to manage risks. We’ll start by considering life insurance.
Typically, life insurance, whether it be group or individually owned, is vital during working years to protect income. This is true as we may have a dependent spouse or children who are reliant on continuity of income. There also may be policies owned to provide for business succession or estate liquidity.
To the extent a retiree is financially independent, and children are grown and also self-sufficient, there may be no need to own life insurance for income replacement purposes. There may be circumstances where life insurance could provide for ongoing income if a spouse were to die and pension income ceases. If a business has been sold or transitioned at retirement, then the need for insurance for business succession purposes no longer exists.
The Importance of Life Insurance
That said, it may be vitally important to retain life insurance to provide liquidity at a surviving spouse’s death if an estate is comprised of illiquid assets and subject to estate taxes. Additionally, it can provide a predetermined way to fund lifetime trusts for children with special needs.
While the need for life insurance may decline as we age, particularly for the purpose of replacing earned income, there still may be a desire to keep policies in force. This may be true if there is a change in health that could effectively impact one’s longevity. For example, if a retiree were diagnosed with a terminal illness, there would be a high motivation to maintain life insurance for surviving beneficiaries knowing that a payout of death claims may be sooner than originally expected.
Before lapsing or surrendering any life insurance policy, it’s important to understand their original intent and if that need still exists. Also, there may be tax implications to surrender permanent life insurance. As always, it’s a good idea to consult with a wealth advisor and even your accountant when contemplating those decisions.
What about disability income insurance, personal and professional liability insurance, long term care insurance, homeowners / renters insurance, identity theft insurance, travel insurance? The list goes on and we’ll plan on addressing those other lines of coverage in a series of blogs and video interviews. Stay tuned and stay connected!
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.
This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.