Life insurance for retirees? Income needs come first

Life insurance needs for retirees cannot be figured with a slide rule or calculator. There is no formula. Generally many retirees need little or no life insurance. Instead, they need income. The cash value locked away in many long-held policies might produce money that could help relieve the financial strain of inflation.

Life insurance may be needed by retirees to provide cash for the settlement of an estate and the payment of estate taxes. No other mechanism is so easy and accepted as life insurance for delivering cash when it is critically needed to pay estate taxes. Ordinarily, taxes on estates are due within nine months of death.

When an estate valuation is under the limit for estate taxes, no money is needed to pay taxes. But cash may be needed to clear up debts and final expenses. A net taxable estate of less than $175,625 for a single person will escape estate taxes. A net taxable estate of double that for a couple will generally escape estate taxes through the use of a marital deduction or by splitting the estate in a community- property state.

Insurance might be needed to replace a pension payable only during a husband's lifetime to ensure income for the widow. Some pension plans provide for payments only during a worker's lifetime. If the wife is the primary worker , the same conditions could apply. When a pension plan offers a lower monthly payment for a couple while both live and a smaller amount to the surviving spouse, this optional feature may be declined to provide more cash while the worker lives.But the surviving spouse could be left with a minimum income. Under either condition insurance on the worker's life could provide a death benefit that could replace inadequate pension payments.

Rather than insurance protection, a retiree or a retired couple should consider their needs for income.Life insurance is really needed to protect dependents if an when the primary worker or breadwinner passes on. Insurance is mainly useful when children are young. An adult dependent, such as an aged parent or other relative, creates a similar need for protection. If a retired couple has accepted the responsibility of caring for one or more dependents, then insurance can ensure continued support.

But when substantial funds are locked into the cash value and accumulated dividends of an insurance policy, these funds could be released for investment to gain additional income. An alternative annuity purchased with the cash value that has accumulated in a life policy should be avoided, as annuities don't work when inflation races along at double-digit rates. A fixed income from an annuity buys less and less as inflation boosts prices.

Couples should evaluate their insurance needs long before retirement. Life insurance planning should concentrate on providing protection rather than investment income. When life insurance is needed, it can be purchased as a term policy. Any remaining funds invested will likely outperform the investment and cash-value buildup of an insurance policy.

Retirees should consider other forms of insurance rather than life coverage. Supplemental medical coverage to fill in the gaps not covered by medicare could be far more important than life coverage. Keeping homeowner insurance in line with inflated housing and personal-property values is another must.

Except for certain conditions, keeping life insurance active after retirement could mean reduced income fo r living. It's worth checking into.