September is Life Insurance Awareness Month, making it a good time to review an often-overlooked part of retirement planning: life insurance.
For many people, life insurance is something they purchased years ago to help protect a young family, cover a mortgage, or provide financial support during their working years. As retirement approaches, it can be tempting to assume that life insurance is no longer relevant.
But retirement changes your financial picture. Your paycheck may be replaced by Social Security, pension, retirement account withdrawals, or other income sources. You may enroll in Medicare. Your mortgage may be smaller or paid off. Your children may be financially independent.
Those changes do not automatically mean that life insurance is or is not appropriate. They mean it may be time to review what you have, why you have it, and whether it still aligns with your broader retirement plan.
Life Insurance Needs Can Change Over Time
Life insurance is designed to provide a death benefit to named beneficiaries when the insured person dies. Policies generally fall into two broad categories: term insurance, which provides coverage for a specified period, and permanent or cash-value insurance, which can provide coverage over a longer period when policy requirements are met.
The right type and amount of coverage, if any, depends on individual circumstances. That is particularly important as you approach or enter retirement.
Consider how different your finances may look today compared with when you originally purchased coverage. Your income, assets, debt, family responsibilities, and retirement goals may all have changed.
Life Insurance Awareness Month can serve as a reminder to ask a simple question: Does my current coverage still reflect my life today?
Look at Life Insurance as Part of the Bigger Retirement Picture
Retirement planning involves more than accumulating a certain amount of savings. It also means considering how your different financial resources work together.
For a pre-retiree or retiree, that might include:
- Social Security benefits
- Pension income
- 401(k), 403(b) or IRA assets
- Personal savings and investments
- Medicare and other health care coverage
- Life insurance
- Estate and legacy plans
Rather than reviewing each item independently, it can be helpful to consider how they interact.
For example, someone with substantial retirement assets and pension income may have different life insurance considerations than someone whose household relies heavily on one spouse’s retirement income. Likewise, a person who wants to leave assets to children or grandchildren may have different priorities than someone primarily focused on covering final expenses.
If You Have a Pension, Consider the Survivor Picture
A pension can be an important source of retirement income, but it is worth understanding what happens to that income when you or your spouse dies.
Pension plans can have different payment and survivor provisions. Depending on the plan and elections made, the amount available to a surviving spouse may differ from the amount received while both spouses are living.
That makes survivor income an important part of retirement planning.
Ask yourself: If one of us dies first, what income continues, what income changes and what expenses remain?
Reviewing those questions alongside Social Security, retirement assets and existing life insurance can provide a more complete picture of the household’s financial situation.
Medicare Does Not Replace the Need for Broader Financial Planning
For many Americans, enrolling in Medicare is a major retirement milestone. But Medicare and life insurance serve very different purposes.
Medicare is health insurance primarily for people age 65 and older and certain younger people who qualify. Life insurance, by contrast, is designed to provide a death benefit to designated beneficiaries.
As you plan for retirement, health care expenses should be considered alongside income, savings, insurance coverage and legacy goals. The objective is not to look at Medicare or life insurance in isolation, but to understand where each fit within your overall financial picture.
Review Your Beneficiaries
One of the simplest steps you can take during Life Insurance Awareness Month is to review your beneficiary designations.
Life changes. Marriages, divorces, deaths, births, and changing family relationships can all affect whom you want to receive your assets. Beneficiary designations on life insurance policies and certain retirement accounts generally determine who receives those assets, making regular reviews important.
Check both your primary and contingent beneficiaries and make sure the information on file still reflects your wishes.
It may also be appropriate to coordinate beneficiary decisions with your estate planning attorney and other financial or tax professionals, particularly if your financial or family situation is complex.
Questions to Ask During a Life Insurance Review
A review does not have to begin with a particular insurance product. It can start with questions about your financial situation:
- Why did I originally purchase this life insurance?
- Does that need still exist?
- Who depends on my income today?
- What happens to our household income when one spouse dies?
- How does my pension handle survivor benefits?
- Are my beneficiaries current?
- Do I have outstanding debts or other financial obligations?
- What role do I want legacy planning to play?
- How does my existing coverage fit with my retirement income and estate plans?
- Do I understand the costs, features, and limitations of my current policy?
Our team recommends evaluating individual needs when considering life insurance and understanding the differences among available types of coverage.
Make Life Insurance Part of the Retirement Conversation
Life Insurance Awareness Month is not simply about buying insurance. It is an opportunity to review whether the financial decisions you made years ago still make sense for the retirement you are planning today.
At SFA Wealth Management, retirement planning looks at the broader picture, including income, investments, taxes, Social Security, Medicare and health care considerations, and legacy and estate planning. Life insurance may be one component of that conversation depending on your needs, resources, and goals.
If you are approaching retirement, already retired, receiving a pension or navigating Medicare, schedule a meeting with our team. We can review your current situation, discuss the options available to you, and help you determine which option may be appropriate for your unique circumstances.