Maryland Bar Bulletin
Publications : Bar Bulletin : March 2007

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It’s Never Too Late (in Life) to Protect Your Family

People often say they won't need life insurance after age 60, or they ask why they would need life insurance during their retirement years. Many of them have set goals of paying off their mortgage and of having their children launched and "off the payroll" before they retire. However, while these are goals to be encouraged, life does not always go as planned. To be sure, there are many reasons people need life insurance in all stages of their lives – including retirement.

Providing for Others

As most people are aware, due to medical advancements and a nation looking to stay fit and healthy, people seem to be living longer and have the mindset that 40 is the new 30, 50 is the new 40, and so on. Many are health-conscious, exercising more in order to ultimately be as active as they can in their retirement years. It is also becoming more widely accepted for people to marry later in life, for the first or second time, and to have children at a later age. In a recent survey done by Prudential Life of 1,000 people close to retirement, six in 10 said that in retirement they expected to provide care for others. Sixteen percent expect to continue to support their children, even after their own working years are over. During their retirement, nearly one in five expect to care for a parent, financially and/or physically.

Many of our clients realize that, in the case of their death, life insurance proceeds could provide for an elderly parent under their care or for a dependent spouse and child. An effective way to accomplish this goal is to have the proper level of life insurance coverage in place and properly allocated to provide funds for that care.

Moreover, if there is a need for life insurance early on in life, this need does not often go to zero as individuals enter into their retirement years. Many express the goal of making sure some level of life insurance coverage is in force, no matter when they pass away, to help ensure that their surviving spouse and loved ones are taken care of. Life insurance provides this comfort for these individuals.

Additional Retirement Income

Permanent life insurance also has a cash-value accumulation component which can provide additional retirement income. Life insurance policies can be an effective way to save for the long term. They provide competitive interest rates over time, and the cash value grows tax-deferred. Tax-deferred growth allows the cash value component of the contract to compound and grow efficiently over time. Due to the allocation of a set amount each year in premium and to tax deferred growth, the proceeds within a life insurance contract can become a viable asset and a big piece of one's retirement savings and income.

At the time of retirement, permanent life insurance can provide dual functions because it has both the death benefit and cash value components. If the need for death benefit protection is reduced due to a reduction in mortgage loans and/or having successfully launched children, then the death benefit can be reduced and a portion of the cash value can be used as income. If the need for death benefit coverage is still present, then the policy owner can keep the full death benefit in force providing the policy owner flexibility and financial options in retirement.

More Aggressive Investment Strategy in Retirement

Life insurance can also allow individuals to be more aggressive regarding their investment strategy for assets such as 401(k) plans and other investment accounts. By purchasing a permanent life insurance contract from a financially sound life insurance company, the policyholder has the comfort of knowing he can rely on cash values to be there in retirement. The nature of guaranteed cash values allows an individual to have a baseline of "safe" money and therefore to have the ability to determine how aggressive to be with other investments and retirement assets. This, in turn, makes it easier to plan and forecast for retirement. (Guarantees are based on the claims paying ability of the issuing company.)

Inheritance Protection and Long-Term Care Needs

Much of a planned inheritance can be absorbed by estate taxes or used for end-of-life health-care costs. Life insurance can be a useful tool in minimizing future estate taxes and can be used by retirees to supplement a perhaps shrinking inheritance for their children. Life insurance can also be an efficient way for children/heirs to recover monies paid to the government in taxes or spent on health care on behalf of their parents. Estate taxes can equate to as much as 55 percent of the assets at death, and long-term care costs for those who require care are rising each year. According to the MetLife Market Surevey of Nursing Home & Home Care Costs 2006, the average daily cost of a private room in a nursing home in the United States is $206 per day, or $75,190 annually. Nationally, the semi-private room rate rose 3.9 percent to $183 per day, and the cost of a home health care aide averaged $19 per hour.

With more Americans marrying later, having children later and caring for elderly parents along with estate tax laws in flux and the cost of elder care on the rise, many people in their sixties are better off holding on to or even adding to their current life insurance coverage rather than cashing it in or letting the coverage expire. Life is at times very difficult to plan for; however, having the proper level and design of life insurance in place makes a life of uncertainties become a bit more certain.

Todd Binder, MBA is an associate of FranklinMorris, Coordinating Broker for the Bar Associations Insurance Agency, Inc. For more information on the insurance benefits available to MSBA members, visit our website at: www.msba.org/departments/membership/baia/franklinmorris.pdf.

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Publications : Bar Bulletin: March 2007