If you’re one of the millions of Americans who owns a permanent life insurance policy(or are thinking about getting one!) you’ve probably done it primarily to protect your loved ones. But over time, many of your financial obligations may have ended. That’s when your policy can take on a new life—as a powerful tool to make your retirement more secure and enjoyable.
Permanent life insurance can open up options for you in retirement in three unique ways:
1. It can help protect you against the risk of outliving your assets. Structured correctly, your policy can provide supplemental retirement income via policy loans and withdrawals. Having a policy to draw from can take the pressure off investment accounts if the market is sluggish, giving them time to rebound. Some policies may also provide options for long-term care benefits. At any time, you may also decide to annuitize the policy, converting it into a guaranteed lifelong income stream.
2. It can maximize a pension. While a traditional pension is fading fast in America, those who can still count on this benefit are often faced with a choice between taking a higher single life distribution, or a lower amount that covers a surviving spouse as well. Life insurance can supplement a surviving spouse’s income, enabling couples to enjoy the higher, single-life pension—together.
3. It can make leaving a legacy easy. According to The Wall Street Journal, permanent life insurance is “a fantastically useful and flexible estate-planning tool,” commonly used to pass on assets to loved ones. Policy proceeds are generally income-tax free and paid directly to your beneficiaries in a cash lump sum—avoiding probate and Uncle Sam in one pass. Your policy can also be used to pay estate taxes, ensure the continuity of a family business, or perhaps leave a legacy for a favorite charity or institution.
Having a policy to draw from can take the pressure off investment accounts if the market is sluggish, giving them time to rebound.
If you do expect your estate to be taxed, you can even establish a life insurance trust, which allows wealth to pass to your heirs outside of your estate, generally free of both estate and income taxes.
Where to start? A policy review
If you’ve had a life insurance policy for awhile, schedule a policy review with your life insurance agent or financial advisor. By the time you reach mid-life, you may have a mix of coverage—term, permanent, group or even an executive compensation package.
Your licensed insurance agent or financial advisor can help you assess your situation and adjust a current policy or structure a new policy to help you achieve your retirement planning goals.
If you have no coverage at all, there’s no better time than today to get started. Life insurance is a long-term financial tool. It can take decades to build permanent policy values to a place where you can use them toward your retirement goals. And, health profiles can change at any time. If you’re healthy, you can lock in that inseparability now and look forward to years of tax-deferred (yes!) policy growth.
Retired already? The best thing you can do is meet annually with your personal advisers to ensure your plans stay on track. Market conditions and family circumstances change, so that even the best-laid plans require course adjustments over time.