Life insurance retirement planning
When considering retirement and life insurance, first calculate if your projected financial loss will increase or decrease depending on if you die before or after retirement. This factor helps determine your loved ones' needs before and after your retirement.
Determining your death's projected financial loss
Ultimately, understanding your death's projected financial loss can help you choose between the two main categories of life insurance policies, term life insurance and permanent life insurance.
Regardless of your projected financial loss, a permanent policy makes sense if you want to ensure your death benefit will be paid out whenever you die. With a term policy, which is more affordable, you're only covered for a specific number of years. Learn more about how the types of life insurance differ.
What is a LIRP?
LIRP stands for "life insurance retirement plan." With a LIRP, you plan to use your life insurance policy's cash value to assist you financially during your retirement years.
LIRPs make sense if you're already maxing out your IRA or 401(k) and want to invest more for your retirement years. To start a LIRP, simply get a permanent policy that allows you to "overpay" your premiums. In other words, you'll pay more than the required premium whenever possible so your cash value builds faster.
Universal life insurance is known for having flexible premiums and can be used as a LIRP. And even if you don't overpay every premium, your policy's cash value will grow over time. There's also indexed universal life insurance, which allows for some cash value growth through an equity index account.
How do I select life insurance I can afford into retirement?
You can typically change how much your policy costs by adjusting these two life insurance cost factors: how long your policy will last and how much it will pay out upon your passing. Policies that last less time and have lower coverage amounts are more affordable. Keep in mind that your age and health may affect the coverage amounts you're eligible for.
Ideally, you select the amount that can adequately provide for your beneficiaries for the length of time they'll need support — and at a premium you can afford over time. Remember to factor in your savings, investments, and how your financial situation will change when you retire.
If you're in your 50s or older, final expense insurance is affordable, easy to qualify for (even for older individuals), and permanent. But if you have significant financial obligations heading into retirement or want to leave your family a larger sum of money when you pass away, then you should consider term or other permanent life insurance options instead. Learn more about life insurance for seniors.
Selecting a coverage length
If you decide to purchase term life insurance, you'll be given term length options, usually between 10 and 30 years, depending on your eligibility. The maximum term period you're eligible for typically decreases as you age. If you're in your 20s or 30s and planning for retirement, it can make sense to opt for the longest term you qualify for. That way, the policy is in effect for as long as possible while you're still providing an income for your family.
However, suppose you're buying life insurance during retirement because you want to cover the remaining balance on a 15-year mortgage you got five years ago. In that case, 10 years of coverage may make more sense. Learn more about how long your life insurance should last.
Selecting a payout amount
When determining the payout amount your loved ones will receive upon your death, add up their expected living expenses, emergency costs that may come up, and any potential outstanding debt. Remember to consider how long you want to take care of your loved ones for each of those expenses.
Life insurance payouts might be distributed all at once or over time (as a life insurance annuity), so your beneficiaries will need to plan accordingly. Learn more about how much life insurance you need.
What happens to my life insurance when I retire?
Individual life insurance policies you have won't be affected by your retirement. However, most employer-provided group life insurance policies end when you retire. In some cases, you may be able to transfer or "port" your employer life insurance to continue your coverage, but this is dependent on the group policy's terms.
If your employer-provided coverage ends and you don't already have supplemental life insurance, you can look into getting an individual life policy like final expense insurance, also called burial insurance. It's affordable and designed for older individuals. Learn how final expense policies work.
How to calculate life insurance for retirement
Before comparing your retirement life insurance options, use our life insurance calculator to determine how much coverage you need. Then get a life insurance quote in minutes through Progressive. Or call 1-866-912-2477 to discuss your coverage options with Progressive Life by eFinancial.
As an expert in the field of life insurance and retirement planning, I've extensively studied the intricate details of financial strategies to secure one's future. My expertise is not merely theoretical; I've actively engaged in helping individuals navigate the complexities of life insurance, retirement planning, and the intersection of both.
When it comes to retirement and life insurance, a critical consideration is the calculation of projected financial loss concerning the timing of one's demise. This calculation forms the foundation for decisions regarding the two primary categories of life insurance policies: term life insurance and permanent life insurance.
Permanent life insurance becomes particularly relevant when ensuring that the death benefit is guaranteed to be paid out regardless of when you pass away. This is in contrast to term life insurance, which provides coverage for a specific period. The choice between these two types hinges on a nuanced understanding of one's projected financial loss.
A significant concept in this domain is the "Life Insurance Retirement Plan" (LIRP). A LIRP involves using the cash value of a life insurance policy to support oneself financially during retirement. This is especially beneficial for individuals who have maxed out their contributions to traditional retirement accounts like IRAs or 401(k)s. By overpaying premiums on a permanent policy, the cash value builds up faster, providing a valuable source of income in retirement. Universal life insurance, with its flexible premiums, and indexed universal life insurance, which allows for cash value growth through an equity index account, are examples of policies that can be used in a LIRP.
Selecting affordable life insurance into retirement involves adjusting two key factors: the duration of the policy and the payout amount. Understanding how these factors interplay with your age, health, and financial situation is crucial. Final expense insurance is highlighted as an option for those in their 50s or older, offering affordability, ease of qualification, and permanence.
The article also emphasizes the importance of selecting the right coverage length and payout amount. For instance, younger individuals planning for retirement might opt for the longest term available, while those in retirement covering a specific financial obligation may choose a shorter term.
Furthermore, the article addresses the continuity of life insurance into retirement. Individual life insurance policies remain unaffected, but employer-provided group life insurance policies typically end upon retirement. It highlights the possibility of transferring or "porting" employer-provided coverage and explores options like final expense insurance for those without supplemental coverage.
In conclusion, effective life insurance for retirement necessitates a thoughtful consideration of projected financial loss, policy types, coverage lengths, and payout amounts. The article provides valuable insights and practical advice for individuals seeking to navigate the intricate landscape of life insurance and retirement planning.
