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Retirement Insurance

Saturday, 1 February 2020

Retirement Insurance

You have been working hard, saving for retirement and now you’ve finally made it. Congratulations! In this next stage of life, many changes will present themselves and you may start to ask yourself the question, “Do I still need life insurance after retirement?”

Life insurance has the potential to enhance your retirement income plan if used strategically in the right situation. Maintaining life insurance as a retiree can help protect your income, provide tax-free income, help manage taxes, make estate planning more effective, provide peace of mind to families, offer relief from high costs of chronic illness, and even improve the total returns in a portfolio.

To start evaluating for yourself whether retirement insurance is the right choice for you, we’ve listed some situations where this type of coverage may be beneficial. Every situation is unique, so we recommend you speak with one of our life insurance brokers to discuss if retirement insurance is right for you.

WILL YOU LOSE A PORTION OF THE FAMILY INCOME WHEN A SPOUSE DIES WITHOUT RETIREMENT INSURANCE?

You want to protect your income, even in retirement. If you know that your Social Security and retirement investments might not cover income lost once you or your spouse passes, retirement insurance might be a good choice for you. You will be able to ensure that a surviving spouse is able to pay certain expenses including funeral costs and maintain his or her current standard of living throughout retirement.

WILL YOU NEED ACCESS TO ADDITIONAL INCOME DURING RETIREMENT?

A permanent life insurance policy will grow as you pay the premiums during your working years. If you find the same level of coverage is no longer needed, the cash value can be leveraged as a source of income for retirement. What’s particularly great about this is that if you don’t exceed the amount you’ve paid in premiums, it’s not subject to taxes.

WILL YOU NEED TO PROTECT YOUR BENEFICIARIES FROM DEBT THROUGH RETIREMENT INSURANCE?

It’s more common nowadays for Canadians to retire with debt (credit lines, credit card, even mortgages). Life insurance can be used to pay off those debts when you die instead of having to liquidate assets (especially when you do not want to sell). A Joint-First-To-Die policy can relieve the burden of debt payments for the surviving spouse. If you’re still paying off debt, take a “better safe than sorry” approach unless those debt payments are such a small part of your net worth that there would be no risk of financial difficulty.

WILL YOU HAVE WILLED ILLIQUID ASSETS TO BENEFICIARIES?

You can also use retirement insurance to create a pool of cash to allow your executor to equalize things for your beneficiaries when something can’t be divided such as real estate or small business. For example, your family cottage is willed to your three children, but only one of them uses it regularly. In theory, that one child would have to buy out the other two siblings, which can be outside their financial capability. Life insurance can be used to equalize the estate by giving the cottage to the child that wants it and giving cash through a life insurance policy to the other two children.

WILL YOU HAVE A LARGE ESTATE?

Life insurance can be used strategically for those who have considerable assets. There may be a substantial tax bill to the estate as a result of income from RRSPs, capital gains from investment portfolios, real estate, small businesses, and other sources of income. A permanent life insurance policy will allow you to provide your family with tax-free cash to pay estate taxes and can also mean your beneficiaries will receive more because the tax bill is paid with life insurance proceeds. A Joint-Last-To-Die policy can also mitigate taxes owing from RRIFs, RRSPs, capital gains, etc. by transferring the assets to the surviving spouse tax-free. We recommend the help of an attorney who specializes in estate planning to properly strategize.

WILL YOU WANT TO GIVE TO A CHARITY?

One of the most attractive advantages to using life insurance is that it allows you to make a much larger gift to a charity whose mission you support. In addition to the goodwill, giving to a charity through your estate can save a lot of money in taxes. Additionally, it enables a donor to make a gift of real estate, investments or other forms of property to a charity while continuing to provide a reasonable inheritance to heirs.

WILL YOU WANT TO PROTECT FROM THE ONSET ON CHRONIC ILLNESS ?

It’s possible that your retirement insurance policy will allow you to access the death benefits for chronic illness before death. Insurance companies recognize chronic illness as either cognitive impairment or the inability to perform two out of six activities of daily living (bathing, dressing, feeding, toileting, continence and transferring to and from bed). While you wouldn’t necessarily need to be hospitalized to receive the money, annual certification from a medical professional is required.

Whether you’ve just started working in your dream career job, or you’re nearly ready to retire, don’t wait until it’s too late – start planning for retirement now! Any of our life insurance brokers would be happy to assist you in discovering if life insurance after retirement is the way to go for your situation. Click here to get in touch with one.