When Can Life Insurance Make Sense in Retirement? By the time you get to retirement, you know a lot more about life insurance than when you bought your first policy in your 20s or early 30s. Specifically, you know: 1.     A primary role of life insurance is to protect the financial security of your dependents. This need usually is not as important in retirement as when you are raising a family. 2.     Retired people have a higher risk of dying than younger people, and so their life insurance coverage costs more. These points are well known facts. So, an intelligent discussion about using life insurance solutions during retirement should begin where these points leave off. 1.     For most retired people, there is no reason to consider life insurance until a specific need for it has been identified in personal retirement/estate planning. 2.     That need probably will be different than it was earlier in life. 3.     When life insurance is used by retired people, it must make cost-effective sense by saving money in areas such as probate court, federal income tax or federal estate tax. “Retirement Phase” Needs Met By Life Insurance There are four major needs that life insurance can help retired people meet: 1.     Leaving assets to heirs on a tax-efficient basis without going through probate. 2.     Planning for and pre-paying estate taxes and settlement costs. 3.     Arranging the transition of a business to a partner or successor owner. 4.     Generating additional retirement income. Leaving Assets to Heirs Many retired people want to leave some money to their family members. But do they also want to leave their families taxes and other expenses to pay? Often, this is a question that most retired people don’t address until after it is too late to do serious planning. Life insurance isn’t the only way to leave assets to heirs with tax advantages, but it can be one of the best. The death benefit in a life insurance contract passes to the beneficiary income tax-free. By purchasing the life insurance inside an irrevocable trust, it also is possible to pass assets to heirs without federal estate tax consequences. Other important considerations include simplicity, liquidity, privacy and probate. Unlike many other types of property, life insurance does not pass through probate court and isn’t subject to probate’s public scrutiny or fees. Planning for and Pre-Paying Estate Taxes and Settlement Costs A half century ago, a large part of the life insurance sold in the U.S. was designated for “burial costs.” Today, funerals cost far more than they did then, but burial is a small part of the cost in wrapping up affairs of a deceased. Despite recent changes in the law, estate taxes remain uncertain and potentially costly for some people. Other costs include state inheritance taxes, payment of the deceased’s debts, probate and executor fees, preparation of the deceased’s final reports and tax returns, and final tax payments. Life insurance can be useful in planning for and pre-paying these costs. Arranging the Transition of a Business to a Partner or Successor Owner It’s common to find business owners in their 50s whose goal is to retire in the next ten years or so. But years later, they still have not let go. Why? They don’t know how. Specifically, they can’t find a way to extract the market value of the business and turn it into liquid cash. Life insurance can be one component in a plan of “business continuity and succession.” That usually means phasing out the boss while protecting what the boss has built for his/her own retirement, family and heirs. The business owner’s life is insured. If the owner dies, the death benefit allows the business itself or the successor owner to buy out the owner’s interest, paying heirs the fair market value in cash. Generating Additional Retirement Income Most people don’t think of life insurance as the best source for obtaining retirement income. But it is often used by to generate supplemental retirement income that “tops off” amounts generated by Social Security, pensions, and retirement plans. Most types of permanent life insurance allow retirement income to be obtained from two sources: Low-cost loans  that are often tax-free and may be repaid at any time. Withdrawals of cash value  that are allowed without withdrawal charge, and are received tax-free (as a return of premium) up to the total amount of premium paid in. Look at Life Insurance Through Different Eyes When you were in your 20s, 30s and 40s, life insurance was a critical part of your financial foundation if you had dependents to feed and shelter, you needed life insurance – whether you wanted it or not. Once you approach retirement, your needs have changed. Life insurance is not a necessity, but it can be a viable planning option for meeting specific needs in a cost-effective and tax-efficient way. It also can increase your peace-of-mind, create the income you need to afford special opportunities, and keep your heirs from squabbling.