Life Insurance: Should you get it if you’re retired?
The average Canadian retiree isn’t going to associate life Insurance with wealth generation or that life insurance has use while they’re still alive. But certain types of life insurance can play a role in the lives of older Canadians, especially if they want to leave a legacy for themselves.
“People often say, ‘The kids are out of the house. I no longer have a mortgage, and so why would I pay a premium for coverage for life insurance?” But they would be making a mistake if they didn’t keep it or get it.
Which life insurance should you choose?
Many Canadians know about Term Insurance, which you can get in terms of 10, 20, 30 years, etc. And which accounts for almost three-quarters of the market according to a Canadian Life and Health Insurance Association report. These are usually set up to help cover the salary of a parent in case they pass before retirement age.
A retiree is often not going to buy term insurance, but often will buy permanent life insurance. This can help them create an estate and conserve it, so that it goes to who you want it to.
Permanent life insurance, as the name suggests, covers you until death, no matter your age. There are three types of permanent insurance: whole life, universal life, term to 100.
Whole Life is generally the one we recommend for its cash value component, as well as if it is a participating policy then you will receive dividends as well from the par account.
Universal has similar characteristics, only with more flexibility on premiums and investment selection, and term to 100 offers coverage until you turn age 100 and does not have an investment component.
They all have tax benefits, as well as estate planning benefits.
The tax-free death benefit can serve as a gift for beneficiaries or cover the taxes on assets in the estate.
Leaving a legacy
If leaving a legacy to your family is important for you, one big benefit of permanent life insurance is that it guarantees a cash lump sum payment to your beneficiaries when you die. This allows you way more freedom to spend your retirement money when you are alive, because you know the legacy will be paid out from the insurance. You don’t need to try and save some of your retirement money to leave behind for your children, grandchildren or charities.
Usually, the reason retirees don’t look at permanent life insurance is because of the expense, but when you look at the benefit of a guaranteed payout to your kids that allows you to spend all your money while you’re alive, it can make a lot of sense.
Most people want to cut their costs, and the premiums are not for everyone but if you want to leave a tax-free gift for your family when you pass then this is the best way as it will be given faster and can’t be disputed unlike a will.
Ideally, to save money, permanent life insurance should be purchased when you are younger, but most people choose the less costly term option to serve their immediate need to replace lost income should they die before retiring. It’s only near or in retirement when the utility of permanent coverage often becomes evident – when premium costs are significantly higher.
In a way you’re paying for it with your age and health as much as you’re paying for it with your money.
Retirees with existing term coverage often have the option to convert to a permanent policy without having to go through the underwriting process again.
The premiums are still more expensive, but we can help tailor the policy to fit your needs.
If you’re able to set up a whole life policy as a retiree and able to put a decent amount of money into it, you can gain access to the cash value portion of the policy. Which you can take a loan from to help with any emergency funding for whatever you might need or even investing.
But the number one thing to do as a retiree in Canada looking for life insurance is to work with a professional like us.
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