As life progresses and priorities shift, a person’s income or earning potential is often affected. Research shows that income replacement is a key reason people consider purchasing life insurance,* but they often overlook one of the most common reasons for a loss of income—retirement.

Also, your retirement goals may change from when you were younger and had more needs to protect. This can lead some to believe they no longer need their life insurance policy. Don’t be too quick to drop coverage, says Allen Jackson, vice president of agent distribution and sales for AAA Life Insurance. The right kind of coverage can do more than just replace income. Here are five ways Jackson says life insurance can help retirees.

Final expenses

The No. 1 reason people buy life insurance is to cover final expenses, according to research from trade association LIMRA and the nonprofit organization Life Happens. More than four-fifths (84%) of respondents cited this reason. Having a simple permanent life insurance policy that is designed to cover final expenses can help eliminate the burden of funeral costs, for example, for your family.

Charitable giving

If your retirement goals include charitable giving, you can make a charity the owner of a life insurance policy that pays out when you pass away. You pay the premiums and get a tax deduction on what you pay every year because those payments are charitable donations. The charity is also the beneficiary on this type of policy, and it receives the funds to continue its cause even when you are no longer here.

See how AAA can help you make the right life insurance choices to prepare for all of life’s events and help protect your family.

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Pension maximization

“There are ways to increase a person’s take-home pension by using life insurance to provide income instead of relying on the spousal pension benefit,” Jackson says.

Adding a spouse to your pension is an irrevocable choice. You can decide to purchase a life insurance policy that accumulates some cash value and has flexible premiums, instead of adding a spouse to your pension, to help supplement your retirement income.

Estate planning

Many seniors set money aside in their retirement goals for their grandchildren through certificates of deposit (CDs), savings accounts or savings bonds. Funds from your CD can instead be used to purchase a valuable life insurance policy with yourself as the insured and your grandchild as the beneficiary. The benefits that can end up passing to your beneficiary are generally income-tax-free, bypassing probate.

Chronic and critical illness expenses

Some life insurance policies can also offer living benefits, covering expenses for long-term care or other costs that can accompany chronic, critical and terminal illnesses.

“You could set up a chronic illness rider on one of our universal life products and draw 2% of the death benefit a month as long as you’re in a long-term care facility or require home health care,” Jackson says.

Regardless of your financial situation, planning is critical to achieving your retirement goals. “If you haven’t created a plan before retirement, it’s not too late,” Jackson says. “But planning before you retire can save a lot of heartache down the road.”

And before dropping your life insurance, consider what it can do. “Life insurance is an important part of a retirement plan that a lot of people may not even look at,” Jackson says. “If you’re smart about it in your 50s, then when you retire, it doesn’t have to be an increased expense. It can be a decreased expense while still providing protection.”


This story was featured in the
January/February 2021 issue of AAALiving Magazine

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*2020 Insurance Barometer Study, Life Happens, LIMRA

AAA Life Insurance Company is licensed in all states except NY. Life insurance underwritten by AAA Life Insurance Company, Livonia, MI. Products and features may vary by state. AAA Life and its agents do not provide legal or tax advice. Therefore, you may wish to consult an independent legal or tax professional prior to the purchase of any contract. ALAN-27285-N20-XX

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