Are you currently retired or planning to retire soon?
If so, you may be wondering how Canada life insurance fits in your retirement planning. While many people think of permanent life insurance as a way to provide for their loved ones in the event of their death, it can also be used for retirement income.
In this blog post, we'll discuss how to use a life policy for retirement income, along with the benefits associated with it.
How life insurance helps during retirement
Canada life insurance can provide some much-needed financial security during retirement, especially when you’re living on a fixed income or concerned about increasing health care costs.
There are two main ways that life insurance can help you during retirement:
- By providing a death benefit to your loved ones
- By providing a source of cash value that you can access during retirement
Let's take a closer look at each of these life insurance benefits for retirees.
The death benefit
If you pass away during retirement, your life policy will pay out a death benefit to your named beneficiaries. This payout can be used to help cover funeral costs, burial costs, outstanding debts, and any other final expenses.
If you have a surviving spouse or partner, the payout can also be used to help them cover living expenses – like groceries, utility bills, and mortgage payments – that they may struggle to pay on their own.
The cash value benefit
Life insurance also provides a source of cash value that you can access during retirement.
Whole life insurance policies are a type of permanent coverage, and they build up a cash value over time that you can borrow against or withdraw through policy loans. This cash value can be used for expenses like home repairs or renovations, medical bills, or even travel.
Different types of life insurance policies and what they offer
Now that we've looked at some of the ways life insurance can help you during retirement, let's take a closer look at the different types of life policies and what they offer.
Term life insurance covers you for a specific period of time – typically 10, 20, or 30 years. During that time, you'll pay premiums (monthly payments) to keep your coverage in place.
If you pass away during the term of your policy, your beneficiaries receive a death benefit payout. But if you outlive your policy term insurance, your coverage will end and you won't receive a payout.
Whole life insurance, on the other hand, is permanent life insurance that covers you for your whole life. That means as long as you continue to pay your premiums, your coverage will never expire.
Since it has a cash value component, it can also provide a source of financial security during retirement. You can borrow against the cash value or take out policy loans to cover expenses like medical bills or home repairs.
How to choose the right policy for your needs
When you're choosing a life policy, it's important to choose one that meets your specific needs and financial goals.
For example, if you're looking for life insurance coverage to help your loved ones cover final expenses or living expenses in the event of your death, a term life insurance policy may be the best option.
But if you're looking for life insurance coverage that can also act as a source of financial security during retirement, whole life insurance may be the better choice.
To find the right product, it's important to work with an experienced life insurance agent or insurance company. They can help you compare policies and riders (add-ons that can customize your coverage) to find the best life insurance policy for your needs.
Make the most of your life insurance policy
Once you have a life policy in place, there are a few different ways you can use it to help with your account and replace lost income in retirement.
First, if you have a whole policy, make sure you're paying your premiums on time. If you miss a payment, your policy could lapse and you could lose your coverage.
With the policy, you can use the cash value to supplement your retirement income. You can do this by taking policy loans or withdrawals from the cash value of your policy.
Just keep in mind that taking loans or withdrawals from your life policy will reduce the death benefit your beneficiaries will receive if you pass away. So it's important to only take out as much as you need and to make sure your policy is still adequate for your needs.
Another way to use permanent life insurance for your retirement account is by using it to help pay for long-term care expenses. If you have a life policy with a long-term care rider, you can use the payout to cover the costs of things like in-home care, assisted living, or nursing home care.
You could also use the payout to fund a trust, pay for your grandchild's education, or make a charitable donation in your name.
Finally, if you're using your life policy to help pay for long-term care expenses, make sure you keep track of your costs. That way, you can make sure your policy benefits are adequate to cover your needs.
What to do if you're nearing retirement and don't have life insurance
If you're retirement planning and don't have permanent insurance, it's not too late to get coverage. There are a few options available to you.
First, you can buy a life policy with level premiums. This means your premiums will stay the same for the life of the policy, even as you get older.
Second, you can buy a life policy with guaranteed issue coverage. This type of policy stays active and doesn't require a medical exam, so it's perfect for people who are unhealthy or have pre-existing medical conditions.
Finally, you can buy a life policy with graded benefits. This type of policy starts with limited benefits and then gradually increases over time. So it's a good option for people who are healthy but want to get coverage in case their health changes in retirement.
Can a 65 year old get term life insurance?
Even if you are age 65 or older, obtaining life insurance coverage is possible and can still be affordable. Depending on your health status and lifestyle, you may be able to get low cost rates on a term life insurance or whole life policy.
Additional Retirement Planning Strategies
Wherever you are on the path to retirement, the following strategies will help you enjoy secure and comfortable retirement years:
- Set up an emergency fund: With a sizable emergency fund, you can safely avoid going into debt over unexpected costs and stay on track with your long-term financial goals.
- Long-term disability insurance: Long-term disability insurance provides you with a steady income if you are unable to earn due to illness or injury. The payout period may be 5 or 10 years or up to age 65. With a long-term disability policy, you will not have to worry about dipping into your retirement fund early if you lose your ability to earn a living.
- Invest in other retirement savings vehicles: Apart from employer pension plans, Canadians have access to a variety of potential sources for retirement income. These include Registered Retirement Savings Plan (RRSP), Canadian Pension Plan (CPP), Guaranteed Income Supplement (GIS), and Old Age Security Pensions (OAS).
- Generate extra retirement income: Getting a side-hustle, renting out extra space, or even tutoring are some great ways to generate extra retirement income.
It’s never too late to get life insurance. If you’re nearing retirement age, it’s especially important to have a policy in place. A life insurance policy can help protect your loved ones financially if something happens to you during retirement, and it can also provide extra income during your golden years.
If you’re not sure whether a term life policy is the right choice for you, our team can help. Our certified financial planner and advisors work with you to find the best policy for your unique needs and make sure you understand how it works so that you can make the most of its benefits during retirement.