Life insurance for retired police officers and law enforcement can be a little different on knowing which path to take. Understanding you need life insurance coverage is just the first step in the process. Evaluating your actual needs at the time of placing coverage is also a crucial step in the process. In this article, I want to take the time of explaining why term life insurance may be the best fit for your coverage needs. Entering retirement can be a scary event.
Do I have all my finances under control? What is going to happen with all my work benefits? Does my life insurance continue or carry over with me?
These may be some of the questions you are lying awake at night thinking about when considering your final days leading up to retirement. You may also be thinking that if some of these benefits do end through your employer, what are your options now? These are all great questions that need to be addressed. My goal in this article is to provide you with the information you need to make the correct decisions.
According to the New York Times, most police and law enforcement officers are ready to hang it up at the 20-year mark. If they have not or you have not retired yet, your likely getting very close to that point. It seems that around the 20-year mark is either when most people work the last tour of duty. Or, they start deciding to look for a safer desk type job. So now the question becomes, what age did you join the force? Depending on what age you are now can make a big difference on some of the planning decisions you make going forward.
Let’s assume you are 55 years old. This would be taking the average age of a new officer in the field of law enforcement and working a 30-year career (10 years past average career duration). You have probably carried life insurance over the past three decades in several forms. Most likely you had:
• Private Life Insurance Policy (outside of work sponsored coverage)
• Employer-Sponsored Life Insurance Protection (while still employed)
During your career, you probably carried work sponsored life insurance coverage. It was most likely deducted straight from your paycheck. These amounts were probably so small. You had become so used to that it seems daunting to lose that coverage and must pay for a private policy at this point. In most circumstances, you were probably allowed to carry a multiplier of your gross income.
When I worked in the field, this was the scenario for myself. With an average base pay ranging from $40,000-$50,000, the group life insurance companies allowed me to carry 4X this gross amount. Ultimately, providing me with $200,000 in life insurance coverage. This seemed great at the time for the price. Runs anywhere from about $9-$20 dollars per pay period. The biggest pros of this coverage while eligible to cover?
• No Medical Exam needed- only a short background questionnaire
• Cheap as you can get for $200,000 in coverage
• Did not even feel like I had premiums to pay, I got used to the deduction of my paycheck.
While the option is on the table for this coverage, you should be taking advantage of it. You cannot beat the price. If you have any reasons why you may have deemed un-insurable, a lot of the time you will still be able to cover work sponsored life insurance coverage.
• Can be terminated by the employer at anytime
• Most circumstances, the coverage is not portable
• Coverage amounts are extremely limited
• If coverage is portable, most policies will begin “ballooning in price” (increasing price)
Now it comes down to the question of what to do about your coverage now that you are approaching your final shift. You know now how the employer-sponsored life insurance works. I talk to clients daily in this same scenario. They want to know what options they have because the plan they once had is increasing in price. It is also decreasing in coverage or being terminated altogether upon retirement.
The first option you have is to try and continue the coverage you currently have. As we discussed before, this is most likely not the best approach. The coverage is very limited. Your prices are likely to increase and or your coverage is likely to decrease. Your best bet is to determine what amount of coverage you need at this stage of life. An average police officer pension is going to provide a national average of roughly $60,000 per year for retirement through your pension system. You likely have eliminated a lot of debt over the course of your working career. Your coverage needs have possibly dropped significantly.
• Does your spouse currently work?
• How many children are still present in the household?
• How many children are you intending on putting through college?
Some families continue to grow as the parents’ age. In fact, it is a proven statistic that families are beginning much later in life than they used to. The chances that you had another child in your mid-upper 40’s is much higher than before.
This can change your family’s financial situation substantially. You now have another dependent that is depending on income. It is not to encourage postponing retirement because we all know that 20 years on the force can be a challenge. You have certainly earned your time to kick back and relax.
Yet, that does not mean the need for protection has disappeared because the need not to set an alarm clock has. The coverage is still very important. You do not want to lose what took your entire career to build and piece together.
Life insurance for retired police officers in this spot can easier to predict. You should know your estimated benefit amount per month if you are nearing the finish line. Usually, the 10X formula holds true. Analyzing your exact debts can be a good indicator as well. If you are still bringing in $60,000 in retirement income and your spouse does not have their own, that needs to be replaced if something happens to you.
That is what they are accustomed to living on. Your passing away will not change that.
After taking care of the income needed to support the surviving spouse, you need to care for the dependents who need your income as well? Will you be paying for the college education? If so, it is advisable to add another $50-$100K of coverage per child.
You must keep in mind that the money we have calculated above only takes into consideration the minimums to survive comfortably.
Do you plan on leaving any extra income to children or grandchildren? Maybe you have a child you want to leave some money for their first home purchase or wedding?
Whatever the case may be, these are the important items to be considered when planning how much life insurance to buy post-retirement.
I know it may seem like a lot to spend when you are moving to a fixed income. A lot of law enforcement officers are accustomed to the fact they can work overtime to add extra funds to the bank. Now, that is not an option. You may, however, be planning on picking up a part-time job that you enjoy or starting a small business. The main thing to keep in mind is earnings from work has terminated. This does not mean the need for a strong financial plan has terminated as well.
Term life insurance is the first and most likely scenario most consumers will go with. I would say a large majority of the clients I help opt for term insurance. Especially after retirement, but not always. Certain circumstances can present that make it more desirable to choose a different option.
Level Premium Term- This kind of term insurance is what you are looking for. You will want to lock in your rates for the entire course of the coverage. The goal behind these policies is to lock your rates in for the duration of the term. Even after the term has expired, you will have the option to continue to renew the policy.
At this point, the policy will move to an “ART” policy or annual renewable term. The prices will continue to climb after the end of the original term life insurance policy. During these years, you should be speaking to an independent life insurance agent. With doing so, attempting to find yourself a more pocket-friendly plan.
Once you have committed to term life insurance as your product, it is time to make sure you select the correct duration. Often, the longer the better is more helpful to you. Let’s go back to the original scenario and assume you are 55 years old. Most people in today’s era are living much longer than ever before. Now, do not get me wrong.
I am not saying that life insurance for retired police officers or law enforcement needs to run until you are 110 years old. I am saying that most people want protection in place for the longest period possible.
Either they want the longer coverage, or they wish they would have done longer coverage when starting the life insurance coverage.
The options you would have for these policies would be the following:
You should sit down and analyze your current debts. Also, analyze estimated times that they may be removed or no longer need to be replaced by the life insurance proceeds.
Depending on your exact situation, whole life insurance may even make sense. Healthy individuals should consider this option. If you are considering leaving a legacy to your kids or grandkids regardless of your longevity, you should also consider whole life insurance.
*A healthy individual 55-years-old obtaining “Preferred Rates” would have to pay $2640 per year. They would be able to lock coverage up until age 121. That comes out to $220 per month. This is also for $250,000.00 in coverage. Most would agree that this is very affordable considering what you get in return. Not only that but it is with a reputable carrier (AIG) “American General Life”.
The benefit of a whole life policy in these situations is you will never have to worry about renewing your policy. If premiums are paid, your policy will run until you are 121 years old. Also, you are looking at a cash value accumulation. Depending on how disciplined you are with not structuring loans early in the policy, it can become quite large over time.
Taxes can also play a large role in the benefits of whole life insurance. In almost all scenarios, the death benefit will pass to beneficiary’s tax-free. That’s right, ZERO taxes. I do not know about you, but anytime I can avoid taxes in any way, I am excited about it.
Let’s look at some of the possible rates for life insurance for police officers nearing retirement. Let’s also assume that for these illustrations you are a non-tobacco user and preferred rates. To achieve preferred rates, you would need to be in overall good health. Limited medications for controlled medical issues and within the guidelines for height and weight. For the sake of the illustrations, we are going to examine 4 very typical retirement ages for police officers.
Most law enforcement officers can retire at age 50 depending on the length of service they have already accumulated. Age 55, 60 and 65 will be the illustrations below showing the difference in premium you will face.
Keep in mind that a majority of group life insurance plans either are not portable to private insurance or will often price hike on you every so many year so the sooner you can get coverage privately to protect your family the better. The old saying, however, is better late than never. All the life insurance rates below are being run through Good Life Protections Rate Engine providing rates for over 40 major life insurance carriers. All the life insurance rates are illustrated as monthly premiums.
As you can see, waiting can pose some issues when it comes to the monthly premium. Based on the data provided above it’s always better to lock in healthy rates at the youngest possible age. Especially if you are getting to close retirement and want to have one more monthly fixed cost already planned and accounted for. Working law enforcement for 10,15,20 years can be quite a roller coaster. Don’t let lack of planning cause future setbacks financially for you or your family.
So, you may be thinking, I do not need that much life insurance. This may be very true. It is possible you had begun a term or whole life policy before retirement. You may have barely any debt remaining and do not have the funds for more coverage. If this is the case, you may want just enough to cover a burial plan or funeral arrangements.
If this is the case, a final expense insurance plan may be your best fit. Several companies offer first-day coverage after approval at very affordable rates. These would helpfully cover your final expense arrangements. Final expense arrangements can still place a heavy financial stress on your family; it should not be overlooked. Look at companies such as…
• Phoenix Life
All these life insurance carriers have different advantages to them which can make them appealing. Talk to good life protection to find out which company is the best fit to suit your needs.
To wrap things up, life insurance for retired police officers still requires proper planning. Evaluation is key. You should be evaluating your finances and debt entering retirement. In addition to purchasing that new fishing boat, you should not be ignoring the need to protect your family’s financial future. You also do not want to come across the event of depleting all those hard years of work and assets you have accumulated. Proper planning and speaking to a professional can assure this does not happen. Figure out your exact needs of coverage and get a rough idea of what coverage you need in place. Evaluate the options with a professional and learn the pros and cons of each. Your best option is always to work with someone who works as an Independent Agent. This ensures you that they are offering you enough options and truly finding the best fit to suit your needs.
Once you have the coverage in place, hook up the new boat, enjoy retirement and your new sound financial plan.
Article Written by Josh Martin– Founder- Good Life Protection- 6/1/2018