Cindy Richey, the president of Prosperity Planning Inc., discovered that a great number of retirees spent everything they earned. What this means is that if Social Security retirement benefits were a couple's entire income, there could be a large decline of income when a spouse dies.
Richey gave an example of one case where the husband received $2,000 in monthly retirement benefits. His wife did not have a comprehensive work history and received $1,000 as her spousal benefit. If he dies, then her benefit will be bumped up to $2,000. However, if she died first, her benefit would stop. The Social Security total payment of $3,000 would drop $1,000 either way when one person dies, meaning there would be a 33 percent cut. If they saved, they would have no issues, but many people do not save and end up losing half their Social Security benefits.
Life insurance helps to make up for this loss and provides for the surviving spouse. It is similar to how auto insurance protects a person from losses in the event of an accident. Cindy Richey continued by saying that people who have a cash-value life insurance policy should avoid dropping it at all costs. As long as the premiums are not a problem, she always recommends to keep the policy.
Buying a life insurance policy ahead of time is important because older adults will pay more for new coverage. Additionally, it would be best if the policy covers both individuals so that neither spouse deals with economic loss.
Sometimes a person gets diagnosed with a terminal illness, and a life insurance policy helps to pay for the medical debts. Maintaining the standard of living for a left behind loved one is important. There are two types of life insurance: term insurance and permanent insurance. Term insurance only lasts for a period of up to 20 years while permanent insurance lasts for a lifetime.
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