Introduction
Do you think life insurance is just for people with mortgages and kids? Do retired people need to keep their life insurance, or even buy more? Find out why the answer could be “yes.”
What’s Life Insurance For?
Life insurance is meant to protect the people who depend on your income, like your spouse and children. It can also safeguard your business and ensure funds for final expenses. But if you no longer earn an income or have dependents, is it still necessary?
What Happens to Your Retirement Income When You Die?
Retired Canadians typically depend on income from these sources:
- CPP/QPP and Old Age Security (OAS): Stops upon death, with CPP offering limited spousal support.
- Retirement Savings (RRSP, RRIF, TFSA): Transferable tax-free to a surviving spouse.
- Employee Pensions: Default to stopping upon death, unless spousal or guaranteed payments are arranged.
- Assets (Home, Investments): Tax implications can arise when passed to children.
How Can Life Insurance Help?
Even in retirement, life insurance benefits can serve many purposes:
- Debt Repayment: Cover outstanding mortgages, loans, or credit card debts.
- Funeral Expenses: A typical funeral can cost over $10,000.
- Income Support: Supplement reduced spousal income after losing CPP or OAS.
Tax Planning with Life Insurance
Life insurance can also play a crucial role in estate planning by:
- Providing tax-free benefits to children or beneficiaries.
- Preserving estate assets like cottages or family businesses.
- Equalizing the value of inheritances among heirs.
How Do You Pay for Life Insurance in Retirement?
Life insurance costs more as you age, but advisors can help choose policies that provide more value than the premiums paid. Options like whole-life insurance offer exponential estate growth and tax efficiency.
Is Declining Health a Concern?
It’s advisable to start planning in your 40s or 50s. Term life insurance can be converted into a permanent policy later, ensuring affordable coverage as health changes.
Do Retirees Already Have Life Insurance?
Many retirees possess smaller policies bought decades ago. Revisiting coverage to align with estate goals can provide greater benefits for families.
Conclusion
Life insurance can remain a valuable tool for retirees, supporting financial stability and aiding in tax-efficient estate planning. Whether to maintain, increase, or buy a new policy depends on your unique circumstances. Working with a trusted advisor ensures the best decisions for you and your family.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.
Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.
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