4 Reasons to Keep Life Insurance in Retirement

4 Reasons to Keep Life Insurance in Retirement https://learningcentre.statefarm.ca/insurance/4-reasons-to-keep-life-insurance-in-retirement/ bb3 Jul 30, 2014

By Staff Writer

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Your house is paid off, your kids are independent, and you’ve built a considerable nest egg. So why should you continue to pay life insurance premiums after you retire? Here are five ways a life insurance policy can help you in retirement:

  1. Supplement Your Income
    The cash value1 of permanent life insurance can help supplement available income sources such as Old Age Security or your Canadian Pension Plan.
  2. Accessing Cash Values
    Whole life insurance accumulates a tax-deferred cash value, and policyholders can borrow against this amount. A retiree who’s downsizing, for example, could use the money to cover the down payment on a vacation home. When choosing this option, realize that the loan will accrue interest, which must be paid in order to keep the policy from terminating prematurely. Loans also reduce the cash surrender value and death benefit of the policy. Consult your tax advisor about possible tax consequences of this option.
  3. Legacy Planning
    You can choose to leave your life insurance payout to your children, their children or your favourite charity. Life insurance proceeds are not typically taxed as income, so your beneficiaries will likely receive the money tax-free.
  4. Pay Capital Gains and Probate Fees
    When properly owned, and in conjunction with an estate plan put together by a lawyer and other professionals, life insurance can be an effective tool to help pay taxes on a high-value estate after your death. With funds available to help pay taxes, your family could avoid taking on additional financial burdens or having to liquidate assets at what may be inopportune time. 

1. Unpaid loans and withdrawals will reduce the death benefit and policy cash value. Loans also accrue interest.