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Do you need life insurance in retirement?

Created date

July 24th, 2012

Your kids are grown, you no longer have a mortgage, and you ve built a comfortable nest egg to finance your retirement. Conventional wisdom says you no longer need life insurance, but in certain scenarios, the right policy could make sense. As a result of the market volatility in recent years, many people aren t retiring with quite as much money as they hoped they would have when they stopped working. Life insurance, says Philadelphia financial planner and life insurance underwriter Adam Sherman (, can give people in that situation the freedom to spend some of their principle and still be able to leave money to children or philanthropic causes. What life insurance does is guarantee a legacy for their family, Sherman says. Another scenario where life insurance could make sense is when a couple relies heavily on one spouse s pension or social security income. New Jersey wealth advisor Brian Solik ( says even if one spouse s pension and social security income doesn t seem significant in one year, it adds up. If a wife outlives her husband by ten years and his social security and pension had been contributing just $12,000 to their household income, she would lose $120,000 over the course of her lifetime. The typical Wall Street approach is You don t need life insurance in retirement. You will have enough assets don t worry about it, Solik says. That is great in theory, but it doesn t always work.

Being prepared

Even if ensuring a surviving spouse will have adequate retirement income is not a concern, Robert Margetic, author ofHow to Survive the Coming Retirement Storm: A Five Step Process for Success in Volatile Times(, says there are other compelling reasons to pay for life insurance. For instance, if your estate is made up of non-liquid assets like a small business or a farm that cannot easily be divided among children, a life insurance policy could reduce sibling rivalry, Margetic says. To treat kids equally, you could buy life insurance and give the money to the kids that don t want the farm or the business, Margetic says. For the same reason, you may also want to consider life insurance if you re leaving a significant amount of real estate to your heirs. Some of your children may be reluctant to sell property while the market is down, while others may want to sell sooner so they can collect their inheritance. A life insurance policy will add some liquidity to your estate, which will create the option for some family members to take cash inheritances instead of waiting for the real estate market to improve, Margetic says. A final incentive to purchase life insurance in retirement: estate taxes. Margetic says taxes on estates over $1 million could increase in 2013. A generous inheritance could become a big headache if your heirs get hit with a whopping estate tax bill. Margetic recommends couples buy so-called second-to-die life insurance policies, which are less expensive than permanent policies for individuals and can be used to cover estate taxes when assets are passed to heirs.