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Life insurance as a strategic investment in retirement

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Financial planners say investing in life insurance is not for all retirees.

Indeed, buying life insurance often is unnecessary for retirees. For one, they may already have a whole life policy that they intend to keep and reap its benefits, or they may not qualify for new life insurance because of health and other factors.

But retirement professionals say they will work with retirees to review existing life insurance policies, suggest changes that should be made and give advice on the kind of policy that works in their situation.

Some policies that retirees may find attractive include a term life policy that protects a living spouse who still has a steep mortgage or other large debt, or a whole life policy that has a rider for long-term care.


Mark Sessanta, CEO of Stark Financial Group in Bethlehem, has taught hundreds of financial planners how to help retirees use a good whole life insurance policy and a traditional individual retirement account to their advantage in retirement.

“You couple life insurance with a traditional IRA, and you have the two assets working together,” he said. “Most people look at these two separately, but they really need to be looked at combined.”

He advises people in retirement age who have accumulated sufficient assets or investments such as a 401k or IRA to consider a whole life policy over other options such as term life, variable life and universal life insurance policies.

The whole life policy would be funded with money from a traditional IRA, and a permanent life insurance policy will grow in value over time, leaving more money upon the policyholder’s death.


Sessanta gives the example of a retired 70-year-old who takes distributions from his IRA –whether forced by regulations or by choice – and uses those funds to pay premiums on a whole life policy.

In this situation, Sessanta said, the retiree may have an IRA that has $1 million, and then he would take out a permanent life insurance policy for perhaps $700,000. The value of the policy grows over the years as he pays into it with part of the money he takes from his IRA.

In the meantime, he can use the money out of his 401k and the rest of his IRA distribution as spending money or income.


This whole life policy creates more assets for the retiree to draw from and also leaves more assets to his beneficiaries.

In this scenario, beneficiaries will inherit what’s left in the IRA and the face value of the whole life policy – with the understanding that inheritance will still be taxed.

“It’s a strategy where you receive more money and pass on more money to the beneficiaries,” Sessanta said.


Sessanta said he knows other financial planners have different views on life insurance for those nearing retirement or already retired.

Some retirement planning professionals say life insurance is just not necessary once a person is no longer working. Still others say people close to retirement, with substantial debt, a spouse to support and a mortgage to pay may find term insurance in their best interest.

Jonathan Soden, partner of Magellan Financial Inc. in South Whitehall Township, said he sees plenty of older people with large mortgages.

“You do not want debt when you retire. You can try to get people to get rid of their mortgage payments,” Soden said, adding that older clients with high mortgages should look into term insurance.


For couples near retirement, Soden reviews all existing policies and determines what a surviving spouse needs to live on after the spouse’s death.

Soden said term insurance for a 60-year-old potentially can cover the house, student college loans and any other debt the couple has accumulated throughout the years.

“Whole life is obviously going to be more expensive for a much smaller policy,” Soden said.


Earl Schultz, who owns Strategic Wealth Advisory of Exeter Township and Upper Macungie Township, also suggests term insurance for those with large mortgages, loan payments and other debts in estate planning.

Retirees who are in a better financial situation “do not want new term insurance. It really isn’t meant for people in their advanced years,” Schultz said. “… If you are in your 70s or older, term insurance goes up astronomically. You want to get rid of it.”

With whole life insurance, Schultz advises those with existing permanent life insurance that they may want to cash in the policy unless they’re strapped for cash and want to use it for a death benefit.


Michael Waterhouse, financial adviser for Independence Planning Group, which has an office in Upper Macungie Township, said life insurance options for those close to retirement all depend on cash flow.

“One doesn’t have to be wealthy in retirement to get life insurance,” Waterhouse said.

He said he sees clients in retirement age who withdraw from their whole life policy and use dividend payments from the policies as income. However, he added that life insurance often doesn’t make sense for those in retirement.

“First off, we always have to see if you can be insured,” Waterhouse said. “And some people have portable life insurance through work. So when they retire, the premium payments pass to them if they decide to keep it.”

Financial advisers say life insurance through a person’s job often is not available upon retirement and people recognize that, but sometimes retirees can take the policy with them. The carrier likely will require them to convert it to a different policy and make premium payments.


Financial advisers say those who have whole life insurance or are buying a new, permanent policy should consider adding a rider for long-term care. This will cover a portion of expenses related to elder care services, including assisted-living, home care and hospice.

A long-term care policy by itself has become very expensive, as insurers have found this kind of policy hard to price.

The rider for long-term care allows you to fund those services you may need when you cannot take care of yourself, Soden said.

He said prices of long-term care insurance policies have skyrocketed in recent years and are not an appealing investment for the elderly.

“When long-term policies came out, they were priced completely wrong,” Soden said. “Now the industry has more data. … The expense of it now is too much for many retirees to purchase.”


Waterhouse said when he talks to retirees about life insurance, the discussion revolves around their particular situation, how long they have any existing policies, their rate of return and how many assets they have.

He also discusses what the retirees intend to do with the rest of their life.

“What it comes down to is that life insurance is a process,” he said. “There is no cut-and-dried answer.”

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