Allworth Advice: Do retirees need a life insurance policy?

Question: Tom and Laurie in Cheviot: We’re both in our early 60s and hoping to retire soon. Is life insurance something we still need?

A: The best way to answer this question is to usually answer another question: Do you still have a stream of income to protect?

But first, let’s back up. Life insurance is a financial product that pays heirs a certain amount of money if something happens to the policyholder. Because even when someone passes, there are still bills to be paid – the mortgage, college for the kids, etc. The main goal when buying life insurance should be to protect against the loss of income for however long those expenses exist. ‘Term’ life insurance – a life insurance policy that’s in place for a certain period of time, such as 15 or 20 years – can inexpensively fill this need in certain cases.

However, in your case, let’s say you’re planning on retiring at age 65. At this point, there’s a good chance you’ll no longer have an income to protect. Since the risk against which you were protecting is gone, so is your need for the insurance. Think about it: Would you keep paying auto insurance after you’ve stopped driving?

But of course, there are always caveats. Permanent life insurance can make sense even in retirement – but only in certain circumstances: If, for example, you have a special needs child who will still need to rely on a stream of income once you’re gone, or if you’re worth millions and would like a way for your heirs to pay for potential estate taxes.

The Allworth Advice is that there is nothing magical about life insurance as a financial product, and in most cases, retirees don’t need a policy. So, the closer you get to retirement, be cautious of any sales pitches that tout life insurance as a ‘must-have investment.’ Because it’s not.

Q: Greg from Edgewood: What are your thoughts on co-signing a student loan? My son needs some help paying for college and he’s asked me to co-sign some additional private loans.

A: While we understand your desire to help your son, we caution you. Here’s why: When you co-sign a private student loan, you’re not merely the ‘back-up’ for your son. Instead, you are signaling to the lender that you are prepared to repay the debt as if it’s your own. You are actually the co-borrower. If your son defaults on the loan, the repayment obligation would be yours. This would not only hit your credit score, harming your ability to take out a loan for yourself in the future (such as a car loan or mortgage), but your budget as well. Would you be able to afford another bill every month?

A better alternative to co-signing is to consider possibly taking out a parent PLUS loan. This is a federal student loan issued in your name. Some parents take out this type of loan then create an informal re-payment agreement with their child. However, we offer this suggestion with a major caveat: We really don’t believe you should be borrowing any money on behalf of your child for their college costs. That is a burden you should not bear as you head towards retirement. And we should also note that if your son has already exhausted his own federal loan options and still needs to take out more money, it sounds like he’s going to a college that’s out of his price range.

Here’s The Allworth Advice: Your son should only be borrowing – in total, over his entire college career – how much he thinks he’ll make in the workforce his first year out of school. Otherwise, he’ll be dragging around student debt for a very, very long time. And if you co-sign on his loan, that debt could follow you, too.

Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend, or someone in your family has a money issue or problem, feel free to send those questions to yourmoney@enquirer.com.

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Visit allworthfinancial.com or call 513-469-7500.