Discussions on life insurance can bring out a wide range of opinions. Some people may have had bad experiences with a particular life-insurance agent or company. For those who embrace the philosophy of any number of radio personalities, life insurance itself may be a dirty word.
In contrast to those staunchly opposed to life insurance, others have benefited from having a policy in place in a time of need. Some examples may include: the death of a spouse, loss of income, or unexpected major expense.
Many employers, including the federal government, offer some form of group-life insurance as part of their compensation plan.
So, what should life insurance do for you? Let’s unpack five specific things life insurance should do for federal retirees.
1. Be there when you die
Amidst all the bells and whistles of modern life insurance, the most basic and important function of life insurance can become lost. The very purpose of life insurance is to provide a death benefit for those you love in case you predecease them. While there are other benefits of life insurance, one must first make sure this basic but vital function is met.
2. Maximize your pension
Federal employees are different from many U.S. retirees because of the FERS pension. Overall, pensions in the private sector are quickly becoming a thing of the past. However, as more companies opt for other ways to provide retirement for their employees, federal retirees still have this unique benefit.
Due to a somewhat different form of income for federal retirees, there comes a need for a unique plan. This is especially beneficial when it comes to getting the most value out of the federal pension.
A federal retiree can elect to leave a survivor benefit to a spouse which is paid for by deducting a percentage of the retiree’s pension. Life insurance should allow an individual to select the lower percentage option, which enables the federal retiree to maximize pension benefits, while still providing this death-benefit need.
For more on pension maximization, see our video below, “What Should Your Life Insurance Do for You?”
3. Potential Tax-free asset
One key element of life insurance is the ability to leave a tax-free death benefit at the time of the policy holder’s passing. Since not all funds left to a spouse, children, or other beneficiary will be tax-free, this is a useful advantage of life insurance.
Also, some life-insurance policies allow for the tax-free distribution of the cash value built up in the policy. This allows for some funds to be withdrawn from the policy while the insured is still living. This feature is what life-insurance professionals call living benefits. For details on this specific type of policy, please refer to a life-insurance professional.
4. Potential for Long-Term-Care Benefit
Long-term care is the need for specialized care outside the parameters covered by ordinary health insurance. While sometimes it just means a longer hospital stay, long-term care encompasses a wide array of scenarios that may arise. Some life-insurance policies provide a chronic illness rider that allows funds from the life-insurance policy to be used to pay for long-term-care expenses. For more on long-term care see, “Preparing for Long-term Care.”
5. Asset Protection
The fifth and final element of a well-functioning life-insurance policy is asset protection. When considering your portfolio, it’s important to know what assets are vulnerable to economic risks. The tax-free death benefit of life insurance can be an important element of diversification in your portfolio as you consider leaving money to a spouse, child, or other beneficiary.