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Life Insurance after Retirement

Of all life insurance purchased a subsection is permanent life insurance. The policies come in many varieties. However the major categories are whole life, universal life, and variable universal life.

When approaching retirement many people look at the premium being paid in relation to their projected retirement income and associated retirement budget. That is, the fixed income of retirement makes the premium being currently paid seem like one of those bills you need to eliminate once in your retirement years.

If you fall into the above category you likely want to consider the following:

(1) most permanent policies allow for reduced paid up as a non-forfeiture option. Hence you can inquire with your insurer on what amount of life insurance is available on a reduced paid up basis. For example, if you end payments on a $175,000 whole life plane you have owned for twenty years, you might find you receive a $38,000 paid up policy,

(1a) in the reduced paid up example above, the cash value of the $38,000 death benefit might for example be $19,000. In most cases you would still have access to the $19,000 if you later decided to cash surrender the product .

(2) abbreviated payment plans may be available with universal life and participating whole life (whole life plans issued by mutual life insurers where the policyholders own the company and a dividend is paid each year. In both the universal life plan and the whole life cases if annual interest earnings (universal life) or dividend (participating whole life) exceed your annual premium you may find that you can merely end payments yet still have the life insurance remain in force.

(2a) in most universal life plans the unbundled concept means the life insurance cost is always increasing. Hence you need to closely research when the interest earnings exceed the cost of insurance by an amount that will carry the policy forward given the rising cost of insurance element.

Note: in all cases above you need to consult the insurer to find exactly what options you have and the exact terms and conditions.

(3) a third alternative is, if you are in reasonable health, is to find a single pay life insurance plan that yields a better over all outcome. Some mutual life insurers have products that can accept a single pay premium and generate a larger death benefit than (1) above. Also the funds transferred into the new product from the old product are done so through a 1035 exchange (like kind exchange) hence avoiding any tax trigger. The funds transferred are not diminished to any significant extent and fully recover and grow after a very short time (if you need access to the funds at a later date the transferred funds have not materially diminished in the short run and actually recover the initial transfer and expand in the medium and long term).

(3a) some universal type policies have significant cash value but will not carry themselves forward as vanishing or abbreviated payment plans as described in (2) and (2a) above. In the case where vanishing premium or abbreviated payments plans are not an option, the single plan plans stand as an alternative.

In summary, if you are getting ahead of the curve and doing retirement income/budget planning you can carry permanent life insurance into retirement without continuing an outlay. For more information please contact us.