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Do You Need Life Insurance after Retirement?

After retirement, most people want to kick back, relax and enjoy the good life that they worked so hard to get during their working years. Because retirement savings are fixed, and expenses are variable not to mention unpredictable since no one knows for sure what their life expectancy is, this means that many individuals work really hard to reduce post-retirement expenses.

Cutting your expenses after retirement is a good, and often necessary, idea. But it can be difficult to figure out which expenses can be cut and which can’t. Obviously living expenses like rent, mortgage, property taxes and electricity will remain. Your electricity use can be handled conservatively, but you’re still going to pay that bill.

One expense that a lot of post-retirees go for is life insurance. Assuming that their heirs will simply get the leftovers of their retirement savings, many post-retirees cancel their life insurance policies and take the cash surrender value. This saves them their annual premiums, for sure – but it’s still not always a good idea.

First, the annual premium on a life insurance policy is an investment in the future of your heirs that is rarely substituted by the value of your remaining retirement funds after death. And if you have significant retirement savings to pass on, life insurance death benefit proceeds can help cut some of the tax obligations your heirs will have. Additionally, life insurance death benefit proceeds do not need to go through probate court, which your retirement savings likely will.

Finally, life insurance policies give you a little mental relief from the obligations that leaving something behind create. It’s one thing to be conservative about post-retirement spending because you want to conserve your savings for you – and it’s another thing to be concerned about trying to leave a legacy for your family. With life insurance, you don’t need to give that a second thought.

May 4, 2011

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