Assessing Your Life Insurance Needs

Let’s talk about the blind spot of retirement planning, and that is assessing your insurance needs. Now there are a couple of areas where this can play in. One is the threat that you’re going to need long-term healthcare.

If you’re 65 years-old, you have over a 70 percent chance that you’re going to need some form of extended, long-term care, which is more than 90 days. If you’re a married couple, it’s 50-50 that you’re both going to need care.

There’s another potential insurance need that people overlook. That is dealing with the risk that one spouse significantly outlives the other. What is the reduction in income, and how catastrophic would that be?

We would expect your income needs and expenses may go down 20 percent or so when one spouse passes away. It can depend on how much you make, but that’s a good number to be thinking about. What if you have a pension?

I see this all the time. With one primary breadwinner, it’s a significant pension, and that pension goes away or you lose half of it. Where does life insurance fit in all of this? Many people in their 60s and even in their 70s assume they can’t do life insurance, for it will be too costly. That is not necessarily the case.

Not everybody has permanent life insurance needs. I’m asked all the time, “What kind of life insurance do I need? Do I need temporary life insurance or permanent? Do I need term or cash-value?” My response is always “whatever life insurance you have in place when you die.” Because you want it to be there when you need it. But is your need temporary or permanent?

If there’s a substantial loss in income. If one spouse significantly outlives the other, then you might have a permanent need. You don’t need life insurance that builds a cash value necessarily, but you need something that will be there that you can’t outlive. There are products available that are kind of like permanent term insurance. They don’t build cash value, but they’re permanent, so your premium never goes up.

It’s not necessarily as cost-prohibitive as you may think. Even at 70-years-old, we have a lot of instances where those can be good solutions if you can afford to fund it out of part of your income. Can you take one percent of your investments and put it into something like that? Many people can afford to do that.

The good news is you can, in many cases, merge that life insurance need with your long-term care need. Usually if you’re going to get permanent insurance at this point in your life, when you’re 60 or older, you would definitely want to consider one of the new policies where they’ll actually advance the death benefit to help pay for long-term care.

If you have a $200,000 death benefit, for example, they would accelerate that benefit to maybe $50,000 over four years to help you pay for long-term care. That’s a good solution. There are other policies where they would accelerate that for $100,000 a year, and then there’d be additional benefits beyond that if you went through the death benefit of $200,000.

There are a lot of options now where you can sort of merge this need for the surviving spouse with the potential need for long-term healthcare. I believe these needs have to be considered part of your comprehensive financial plan.