ó Life insurance generally does a good job of doing
what itís mainly intended to do, which is to protect
spouses, children and other people who depend on the
policy owner financially.
after years of raising a family, paying off debt and
building a retirement nest egg, there often comes a
point when the reasons an individual purchased life
insurance no longer exist. The kids are on their own;
the retirement parties are over.
wisdom holds that retirees should say goodbye to
unneeded policies. But financial advisers say donít be
so quick to drop life insurance.
policies may be irreplaceable," said Marc
Tannenbaum, a principal and senior adviser at Signature
Financial Planning in Pittsburgh. "Life insurance
policies that we obtain at a younger age, we canít go
back and get them later in life."
a policy is no longer needed for debt coverage or income
replacement, for example, advisers at his firm look to
use insurance as a legacy planning strategy.
want to know if the client is planning to leave their
children or grandchildren money, or perhaps they need
the policy for final expenses," Tannenbaum said.
"If long-term care expenses turn out to be higher
than expected or planned for, life insurance can help
bolster the estate at the end of life and replace the
money that had been spent on oneís health care."
the decision comes down to a personís individual
thinking is that once the children are grown and
retirement is on the horizon, you can drop life
insurance, said Edward Kohlhepp, CEO and founder of
Kohlhepp Investment Advisors in suburban Philadelphia.
"Thatís only true for a segment of the population
that is struggling to make ends meet.
those who have accumulated a reasonable amount for their
retirement, my advice would be not to drop life
insurance until youíve had the policy analyzed by a
Knotick, managing partner for Accurate Solutions Group
outside Pittsburgh, said whole life and index universal
life polices can be structured to maximize the
accumulation value and de-emphasize the insurance value.
Some also contain what are called "critical illness
riders" that give the insured access to the death
benefit in the event of a critical illness, such as a
long-term care stay.
life insurance is plain life insurance payable to
beneficiaries when the policy owner dies. Whole life
policies also accumulate a cash value that can be
withdrawn or borrowed against.
indexed universal life insurance policy offers more
flexibility than whole life insurance. This type of
policy gives the policy holder an opportunity to
allocate cash value amounts to either a fixed account or
an equity index account that would track either the
S&P 500 or the Nasdaq 100.
policies allow policy owners to benefit from market
gains, with a cap on the upside earnings, usually about
4 percent. But there is no risk of losing any money
invested in the policy. The money and growth inside the
policy also is 100 percent tax-deferred for life and the
cash value can be used to pay premiums.
existing whole life policies that you may have had in
effect from when you were younger might be convertible
or exchanged into an index universal life insurance
policy," Knotick said.
if the policy owner does not convert these older whole
life policies, they may be at the point where the annual
dividend is large enough to pay the annual premium,
effectively keeping the coverage in force without any
additional out-of-pocket cost."
whose firm manages $160 million in client assets, said
his retired clients will often keep policies in force
for legacy planning when they want to bequeath a
specific sum of money to a friend or family member. The
policies also are used for charitable giving if they
want to leave money to an organization.
some people, if they have enough assets, life insurance
policies can now be sold in a life settlement,"
Kohlhepp said. "There are companies that will buy
life insurance policies."
settlements are a controversial but a rapidly growing
practice in which senior citizens raise cash by selling
their life insurance policies to third-party investors
who cash in on the policy when the senior dies. The
senior receives an immediate cash payment. The buyer, or
investor, pays all future premium payments and receives
the death benefit.
insurance itself has other significant advantages,"
Kohlhepp said. "One is that the death benefit is
income tax free and probate free. And if used properly,
you can withdraw cash from the policy income tax
life policies offer an option that allow owners to take
out loans against the cash value, said Andy Wolfinger, a
retirement planning and Social Security expert at Janney
Montgomery Scott in Pittsburgh.
main thing you need life insurance for is medical
expenses," he said. "If you think youíll
need long-term care, you can use the life insurance
proceeds to pay for it. You can access that money by
borrowing the cash value Ö," he said.
best thing about whole life insurance is itís a forced