Protecting & Caring For My Life and Family

The roles life insurance can play in retirement

As people age, many believe they have less of a need for life insurance. However, there are very important ways life insurance can make your retirement more comfortable and secure. Here are a few benefits to owning life insurance in retirement:

Ensure money for your family with a death benefit

One of the best things about adding life insurance to a retirement plan is the freedom it provides. With the proper life insurance policy as a part of a retirement plan, life insurance can help maintain your spouse’s lifestyle on your death as well as provide the legacy you hope to leave to the next generation. In addition, the tax free money from the death benefit is available to pay for end of life medical costs, taxes on retirement assets, or simply as an additional benefit to be distributed as you choose. If properly structured, life insurance death benefits pass income tax-free to your beneficiaries and can be removed from the taxable estate. Since death benefit proceeds can provide the funds needed to pay estate and income taxes as well as financial expenses, life insurance is often the most cost-effective means for protecting your estate.

Additional help in the event of a chronic or terminal illness

Some policies have the ability to add a feature that can accelerate the payment of the death benefit if the insured needs care for a chronic or terminal illness. This benefit can provide you with additional financial resources at a time when you may need them the most. Best of all, the payment of the benefit is not tied to a particular course of treatment, but can be used as you need to use it, for whichever purpose suits you best.

Reserve cash value for the unexpected

The cash value in permanent life insurance can also give you financial security when unexpected expenses arise during retirement. That might include needing a temporary boost to your retirement income, covering a large purchase or repair cost, or helping to cover the costs of health or long-term care.

Depending on your circumstances, it could make sense to use your life policies. Unlike loans from a bank, there is no credit check or income verification required to access the cash value of your life insurance policy. This ensures that you have access to the money when you need it most.

Have a non-traditional solution to tax uncertainties

High cash value life insurance, when owned in conjunction with other retirement investments, may provide the ideal way to help tax-diversify your retirement savings. How?

Withdrawals and loans from your policy values are generally income tax-free to you under the Internal Revenue Code.*
Because withdrawals and loans can be taken on an income tax-free basis, they do not subject your Social Security income to taxation, unlike income from other sources.
There is no 10 percent penalty tax on cash values distributed prior to age 59½ (if the policy is not classified as a modified endowment contract).
You decide when, or if, to take distributions because there are no required minimum distribution rules.

Buffer market volatility with permanent life insurance

Qualified retirement savings accounts, such as 401(k) and IRAs can be helpful tools for building up assets for retirement. But, when it comes time to get money for retirement, it involves selling off shares of the investments.

When the market is doing well, that's no problem. But if the market is down, you may be selling more shares of your investments than you want in order to get the same income you need. That also means you may be depleting your account too quickly, and jeopardizing your future retirement income security.

Most permanent life insurance policies have the ability to build up cash value. While there are different types of permanent life insurance, many have protections in place that shield the cash value from market volatility. That means you can use this asset for retirement expenses during investment downturns and allow your investment accounts to rebound in value.