A Guide to Life Insurance and Retirement • Benzinga – Benzinga
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No one likes to think about death, but it is something that you can’t ignore. It’s important to prepare financially for your loved ones to face life without you.
Life insurance is financial protection for your family after you are no longer around, but did you also realize life insurance can play an important role in preparing for retirement? Keep reading to learn how life insurance can be an important part of your retirement income plan.
What Types of Life Insurance Do You Need?
The type of life insurance you need will depend on your unique life situation, including how you plan to live during retirement and how much income you need to live comfortably.
Here are some of the most common types of life insurance with an explanation of who they are best fitted for when considering how to invest for your retirement:
Term life: Term life insurance policies range from 10 to 30 years in length. Term life insurance pays a death benefit to your chosen recipient but does not accumulate cash value.
Term life insurance costs less than whole life insurance. Term life insurance may be a useful option until you can afford more comprehensive coverage. Some term life insurance policies let you change to a whole life policy at the end of the term.
Whole life: Whole life insurance covers you for your entire life. It pays a death benefit and builds monetary value that can be borrowed against for things like retirement income. The whole life policy offers a fixed interest rate and level premiums.
Universal life (UL): A full life policy with adjustable premiums. You can save money on the policy by making extra payments that are credited to the cash value. For individuals looking for retirement investments, universal life insurance is one option to consider. Many UL policies allow you to choose your own funds for investing, much like a 401(k) plan.
The monetary value grows over time, as does the death benefit. Remember that if you die with universal life insurance, your beneficiary will only receive the face value. The insurer maintains the accumulated cash value.
Indexed universal life (IUL): If you want to invest in your retirement, an indexed universal life policy may be right for you. Indexed universal life insurance policies will allow you to invest the interest generated. The IUL policy’s interest allows the cash value to grow tax-free. If you wish to put off paying your premiums, you can utilize the interest to do so.
Guaranteed universal life (GUL): The GUL is a hybrid between term and whole life insurance. The coverage is age-specific and not year-term. You decide when coverage expires, and most policies last until the policyholder reaches 80. The GUL policy is less expensive than whole life and has a cash value option. The GUL is a means to receive permanent life insurance (you decide when it stops) for somewhat more than term insurance.
Variable universal life (VUL): Life insurance with a built-in savings account. Savings accounts are subdivided and invested. You can earn more money, but it is riskier due to market swings. Your premium payments fund the subaccounts. The policy’s savings are distinct from the death benefit. The cash value of the VUL policy does not disappear if the investments do. But the death benefit remains.
What is the Laddering Strategy?
Different types of policies may best fit you at specific times in your life. Some types of life insurance are better than others when it comes to planning for retirement income.
Laddering life insurance addresses changing insurance needs. Buying multiple life insurance plans might provide maximum coverage when needed. But you’re not paying a lot for life insurance you don’t need.
While an insurance need is highly personal, it is generally advisable to establish a plan that includes multiple life insurance policies to meet changing demands. It’s called a life insurance ladder.
An insurance ladder has many policies that expire in different years as your needs lessen. In some circumstances, this is preferable to buying a large life insurance policy to try and cover all your needs. It allows you to adjust your coverage as your life changes.
A life insurance ladder has several policies for different financial obligations, so you don’t pay for coverage when you no longer need it. This usually minimizes your total cost over time.
How Can Life Insurance Help Pay for Retirement?
While you may not use a life insurance policy’s cash value as your entire retirement investing strategy, it is worth considering as part of your retirement income. According to the National Association of Insurance and Financial Advisors (NAIFA), combining whole life insurance and income annuities is a solid retirement investment strategy.
A whole life policy has the opportunity to accumulate cash value. In its basic form, a policy’s cash value is the leftover balance after insurance payments are deducted. This feature allows for several uses of life insurance in retirement.
The cash value account rises over time and can be used for retirement income. Also, as long as the withdrawal doesn’t exceed the premiums paid, it’s tax-free.
You can also borrow from your cash value to fund your retirement. Consider it a loan from your future self. You are not obligated to repay it, but it will accrue interest and be deducted from your death benefit
For permanent life policyholders, another benefit worth noting is the opportunity to pay future premiums with cash value from the policy.
Preparing Your Partner for the Future
Preparing your partner for the future is as vital as retirement planning. Not only do you need the right insurance, but your partner has to know where key documents like your life insurance and will are. You can ask your lawyer to keep this key estate planning paperwork for you and your partner to make things easier.
Whether you’ve been married for a few months or many years, there are numerous important issues to consider. Here are some topics to talk about with your partner about retirement and estate planning.
Is your state a “community property” state?What assets do you want distributed to your heirs?How will you divide these assets?How will your family situation impact the process?Are you using the most tax-friendly estate planning method?
Compare Life Insurance
Deciding on a retirement strategy takes a lot of preparation time. If you’ve made the decision to include life insurance as a part of your retirement income, Benzinga has prepared a list of life insurance providers with life insurance options you can add to your retirement strategy.
Should You Add Life Insurance to Your Retirement Strategy?
You can never start planning for retirement too early and you can never have too many options for retirement income. Having life insurance as a part of your retirement strategy can be an effective way to grow your retirement income.
Frequently Asked Questions
What happens to my life insurance when I retire?
1
What happens to my life insurance when I retire?
asked 2022-01-26
Philip Loyd, Licensed Insurance Agent
1
When you retire, you can either keep paying for your employer-provided life insurance or buy your own coverage. Most people’s group life insurance becomes highly costly after retirement. Insurance companies have several policies that you should investigate years before your last day at work.
Answer Link
answered 2022-01-26
Benzinga
Does life insurance help with retirement?
1
Does life insurance help with retirement?
asked 2022-01-26
Philip Loyd, Licensed Insurance Agent
1
Whole life insurance has a death benefit and a cash value that can be used to supplement retirement income. Many modern policies also cover long-term care and chronic illnesses.
Answer Link
answered 2022-01-26
Benzinga
