One of the common dilemmas I see retirees and near retirees face is what to do with life insurance policies they no longer want or need.

Some retirees still find a need for life insurance. Common reasons include a reduced survivor benefit from a pension plan, the decrease to just one Social Security benefit when a spouse dies and higher income taxes paid by widows and widowers.

Nonetheless, one definition of retirement is it is the time you permanently leave the workforce so it follows that many retirees have little need for life insurance for income replacement purposes. In addition, with the estate tax exemption now up to $5.49 million per person, the use of insurance to offset these taxes is less common.

Unfortunately, many clients view their policies as a puzzle or even a nuisance. Fact is, those policies are assets with value and shouldn’t be disregarded. In some cases, like a policy with a loan, doing nothing can be costly.

So what should a retiree do with their life insurance? Of course, what to do depends on many factors but in my experience retired clients have taken one of the following eight options.

1. Keep it—Everyone dies eventually. If the policy is in no danger of lapsing, heirs should get the death benefit.

2. Surrender it—With the premiums stopped, cash received in excess of basis is taxed at ordinary income rates, not the lower capital gains rates. No death benefit is left for heirs.

3. Let it ride—Stop premium payments and let the remaining cash value fund the policy for as long as it can last on its own.

4. Sell it—Life insurance is an asset and can be sold. The older the insured or the worse the insured’s health, the more the policy will sell for.

5. Donate it—Like other assets, a life insurance policy can be donated to a charity for a charitable tax deduction.

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