Life Insurance Can be a Creative Problem Solver

Life insurance has traditionally been used to pay for the care of a loved one in the event of your untimely death, but increasingly it’s being used in other, more creative ways.

There are two basic scenarios in which you would require life insurance in retirement. First, you don’t have enough money to cover your final expenses, and you don’t want to burden your family. So, you purchase a small life insurance policy to cover these expenses.

Second, you have dependents – usually a spouse and/or children – who would not have sufficient income to live comfortably after you die. So, you purchase a larger life insurance policy to support your loved ones until they can provide for themselves (or for life, depending on the circumstances.)

Creative Uses for Life Insurance

Beyond these basic intents, however, life insurance can provide a creative solution to other problems that may crop up.

For example, in this scenario, you have a considerable estate, and don’t want to leave your heirs with the burden of paying estate taxes. But there’s a simple solution: You could set up a life insurance policy to pay the estate tax.

Here’s a more realistic scenario that resonates with many of us. Often called “pension maximization,” this strategy solves another problem.

In this scenario, you and your spouse want to take significant withdrawals from your retirement plans, with the result that your savings will be exhausted when one of you dies. The solution here is to purchase a life insurance plan to provide something for the remaining spouse.

In all of these instances, you would probably purchase permanent life insurance instead of term life insurance, which only stays in effect for a specific time period.

Your advisor is well-equipped to explain the differences between permanent and term life insurance, and to recommend which is best for you based on your individual circumstances.