|
|
|
Do "empty nesters" need life insurance?
Quite possibly.
Here are 10 reasons to own life insurance after your kids have left
home:
- To meet goals
If your children are in college and/or not completely financially
independent, life insurance can help “finish the job.” Although you may
have saved enough for tuition, the kids’ living expenses (e.g., room
and board, laundry, entertainment/activity costs, etc.) continue, but
not Social Security benefit payments for the surviving spouse and
children—they stop when the kids leave high school.
- To support other dependents
If you have parents, disabled adult children, or others who depend on
you for financial support, life insurance would continue this support
if you die before they do.
- To cover the Social Security
“blackout period”
A recent study showed that 5 percent of married women ages 51-64 were
poor, but 20 percent of widows that age were poor. This happens because
many people don’t plan for life insurance to pay income to the
surviving spouse after their kids are grown. As noted above, Social
Security pays nothing from when the youngest child leaves high school
until the surviving spouse applies for benefits based on the deceased
spouse’s record (minimum age for eligibility is 60). This interval is
called the “blackout period.”
- To offset reduced Social
Security survivor’s benefits
If a survivor begins receiving Social Security survivor benefits
earlier than the full-benefit age (66-67, depending on when the
survivor was born), the Social Security benefit amount is permanently
reduced. Moreover, because of the deceased’s early death, he or she
didn’t get salary increases that might have boosted Social Security
benefits further. A life insurance policy can help offset the effect of
these “lost” raises.
- To offset other “lost”
retirement savings
Also, because of the deceased’s early death, he or she didn’t get
salary increases that might have boosted employer pension benefits
and/or IRA contributions. A life insurance policy can help offset the
effect of these reduced retirement savings.
- To meet commitments based on two
incomes
Most two-earner couples make financial commitments (e.g., home
mortgage, loans, leases, etc.) based on their combined income. Life
insurance on each earner enables the survivor to continue to meet those
commitments.
- To pay unplanned expenses caused
by an early death
Young people don’t generally plan to have savings available to pay for
funeral and burial costs, final medical expenses, estate administration
and transfer costs, and federal and state income and estate taxes. Life
insurance can cover these costs, which can easily reach tens of
thousands of dollars.
- To create a financial “safety
net”
Conventional wisdom says each household should have an “emergency fund”
equal to about half a year’s income, to meet surprise unavoidable
outlays. If the household does not already have an emergency fund, the
post-death family will be even more financially vulnerable without one.
Furthermore, it might also be somewhat more difficult for the survivors
to obtain credit. Life insurance can solve this problem.
- To offset lost income if a
spouse dies after beginning Social Security retirement benefits
When a couple retires and begins receiving Social Security retirement
benefits, each one receives an income. The earner with the larger
pre-retirement income gets a benefit based on that income, and the
person with the smaller (or no) pre-retirement income gets either a
benefit based on his or her own earnings record or half of the spouse’s
Social Security benefit, whichever is greater. When one spouse dies,
the larger retirement benefit continues but the second benefit stops—in
effect, a 33 percent income reduction. Life insurance can offset this
income drop.
- To provide bequests to heirs and
charities
If you want to be sure that your heirs and/or favorite charities get
money after your death, you can designate some or all of your life
insurance benefits to go to them. This is particularly useful if,
without the life insurance, your executor would have to liquidate other
assets to meet this objective.
|
© Insurance Information Institute, Inc. - ALL
RIGHTS RESERVED -
<< Should I buy life insurance on my
child's life?
|
|
|
|
|
