Did you know there are at least half a dozen reasons for people who are retiring or seniors to buy or continue to carry life insurance? While several life insurance solutions for seniors look the same as when they were younger, there are several different scenarios to consider as well.
Special needs: Children and grandchildren can be provided life-long financial support with the proceeds of a life insurance policies and a Henson trust.
Estate equalization: The opportunity for parents or grandparents to ensure the fair and equitable distribution of funds to all their children and grandchildren. If Mom has been using her resources to give financial help to a needy child, then upon her death the proceeds from her insurance can be distributed recognizing the financial support already given as a “pre-payment” of the inheritance. This simple solution avoids any siblings feeling that “Mom must have loved you more because you got more.”
Leaving a legacy: Sometimes referred to as ‘a gift from the grave’ to family, church, or charity can also serve to reduce the deceased’s final income tax return to zero. Much has been written about charitable giving. Rightfully so, as people who are not concerned about outliving their money often wonder about…Has my life made a difference? With the stroke of a pen they can.
This gift doesn’t have to be grandiose. It can be life insurance that pays for grandchildren’s post secondary education or what about all those Grandma’s and Grandpa’s who acknowledge their children and grandchildren’s birthdays and special occasions with cards containing a cheque or cash? That doesn’t need to stop when they are gone.
Replace essential income: For a spouse or family that may be lost if the individual dies. This is certainly the case when a senior has taken a Life Annuity with no guarantees in order to receive the highest monthly payout.
Today, Canada has more than 6 million grandparents with almost 65,000 grandchildren being raised by them. Replacing essential income for these grandparents is clearly critical for the future of their second generation. Studies continue to confirm the current average cost of raising a child from birth to age 18 ranges between $250,000 to $291,000 and these numbers do not include the cost of post secondary education.
Income replacement is often the main focus for life insurance purchases for young families but the need for seniors is the same. The loss of a major revenue source can be devastating especially if the surviving spouse’s advancing years is also accompanied with increasing medical challenges. In fact, it is prudent when doing needs analysis to consider providing more than the lost income as aging seniors start to require additional funds to hire help for assistance with a myriad of needs.
Pay off any existing debts and financial commitments: For seniors who do not want to touch their capital or their capital may not be liquid. Yet, they still want to help a child who is in a financial bind, so they will either take out a loan or co-sign on a loan for their child and pledge a guarantee from their capital. Depending on the amount, the bank will insist on life insurance being taken out – either the bank’s insurance or individually owned insurance.
Seniors today will often have a line of credit too, and may choose to use the funds available from it, rather than take out a new loan. Bank owned life insurance on their line of credit typically only covers the “average of balance owing” over a stipulated period of time. This means that if the senior makes a large withdrawal from their personal line of credit that has typically had a minimal if not a zero balance, and then passes away three months later, the amount NOT represented by the “average balance” will NOT be insured.
Another reality for many grandparents today is remortgaging their homes to help finance the cost of raising their grandchildren.
Pay final expenses: This could be income taxes, as well as funeral and other last expenses (e.g. any uninsured loans) to ensure that other assets don’t need to be liquidated to pay the bills.
With advances in medical science and many quality guaranteed issue plans, there are lots of reasons to talk with seniors about their life insurance needs. We know they are not likely to buy online and would prefer and indeed appreciate a personal visit from you … and always remember to offer a complimentary beneficiary review.