When you reach retirement age, your need for life insurance often changes. During your years in the workforce, the focus is on accumulating wealth. Protecting the source of income (you) is also a primary concern. When you retire, it’s important to reevaluate your needs and desires with respect to life insurance.
In this article, we will look at life insurance in retirement. Should you increase, decrease, or drop your coverage? What factors should you consider when making your decision. We will answer these questions as they relate to the unique plans offered through the AICPA. For more information on AICPA life insurance, please check out a couple of our most popular posts here and here.
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AICPA Life Insurance in Retirement – Decrease or Drop your Coverage?
The standard advice is that you want to keep life insurance in force only while your loved ones depend on your income. Once you retire, you might not “need” life insurance as income replacement, but it could be desired for other reasons. Let’s look at those reasons below.
- Just in case
- Final Expenses
Just in Case
The first reason listed – Just in case – is a common reason why people choose to keep or increase their life insurance in retirement. It’s simply a matter of preparing for the unexpected. You may have children or grandchildren that depend on you for financial assistance. Even if they don’t depend on you now, things could change. Financial setbacks or other unforeseen circumstances could happen.
We recently had a 64 year-old retired client who was nearing the end of his 15-year term policy. Although he didn’t really need more coverage, he decided to purchase another 15-year term policy. He and his wife felt more secure with the coverage in place. He received the “Preferred Best” rate and was happy with the replacement insurance.
The second reason is closely related to the first – Legacy. There may not be an unexpected need or setback, but you simply might want to give your loved ones life insurance proceeds. Again, this isn’t based just on need, rather your desire to take care of your family and know that they will be financially secure.
To make things easier on your surviving family, you might want to consider “earmarking” a life insurance policy for final expense needs. These needs include burial and other related expenses. Final Expense policies are usually sold as small whole life policies. However, there are other types of permanent insurance that can serve the same purpose.
There are other reasons to keep or purchase life insurance in retirement, but let’s look specifically at the AICPA life policies.
AICPA Increasing Term Policies
If you have an AICPA Increasing Term policy, then you might want to look at the scheduled rate increases over the next several years. If you’re in good health and need coverage, then it would make sense to compare the cost to a level term policy. When you have a serious health issue, it could be better to keep your policy.
Increasing Term insurance can makes sense if you only want coverage for a short period of time. A knowledgeable agent can help you with some comparisons.
AICPA Level Term Policies
AICPA level term policies (10-year and 20-year) are usually worth keeping. However, if you feel like you no longer need the coverage, you can drop it. Also, you could reduce the face amount with a commensurate reduction in premium. This is an option people often overlook. They think it’s “all or nothing” when a face amount reduction could be the best option.
Again, if you think you might need additional coverage, then shopping and comparing the AICPA coverage to individual plans is important. All AICPA plans are group policies underwritten by Prudential Life.
AICPA Group Variable Universal Life Insurance
If you have an AICPA GVUL policy, then evaluating your options can be a little more involved. We recommend requesting an “in-force ledger”. This shows you how your policy is projected to perform based on certain assumptions. The GVUL policy has increasing premiums, so having a good understanding of your future premium outlay and projected cash value is imperative.
Since a variable universal life policy allows you to invest in sub accounts, this requires some good financial advice. In retirement, you usually want more conservative, fixed investments. Like all variable policies, the AICPA GVUL allows you to shift the investment focus.
We find that people who want a permanent policy without the cash value component are often well-suited for a guaranteed universal life policy. This type of policy is often referred to as “term for life” or “term that never expires”. To read more about GUL, please click here.
Should You Keep Your AICPA Membership Active in Retirement?
It is important to note that in order to keep receiving your annual Trust Rsefund, you are required to keep your AICPA membership active. This added cost (annual membership fee) should be factored into your decision. You may decide to keep your membership in retirement, but you may decide it isn’t worth the cost.
Review Every Few Years
It’s a good idea to review your life insurance every few years. However, anytime you have a significant “life event” such as retirement, it’s a good reason for a review.
When we perform life insurance reviews, it’s not uncommon for us to recommend “staying the course”. However, many factors need to be considered before we suggest making any changes. See our article on Should I Replace my AICPA Life Insurance for further information.
During policy reviews, we suggest looking at all of your beneficiary designations. Sometimes, these designations should be updated. You might have named a relative or close friend as a beneficiary since your children were not yet adults. There are other reasons why a change in beneficiaries (primary and contingent) could be necessary.
AICPA Life Insurance in Retirement – Conclusion
Depending on the type of coverage you have – AICPA Increasing Term, Level Term or Group Variable Universal Life – it is important to reevaluate your need for life insurance in retirement.
Everyone’s situation is different, so we recommend looking closely at several important factors to determine what is your best course of action. We also recommend finding an experienced, independent agent to help you shop the market and compare your plan options.
We are familiar with AICPA plans and can help you compare. The plans offered by the AICPA are unique in many respects. Understanding the plan designs, annual refunds and other aspects of these plans is necessary to make sound recommendations.
Please call us anytime for a free evaluation. We’ll be glad to look at your current policies, ask you the right questions and help you make an informed decision.