How to Use Life Insurance for Retirement
It’s understandable if your life insurance policy is not top of mind for you on a daily basis. But did you know that, aside from paying your beneficiaries money upon your death, there are other benefits worth exploring? As you look ahead to retirement, it’s worth exploring how your policy can be utilized as a source of income in retirement to help maintain your lifestyle.
Using Life Insurance to Fund Retirement
Building Cash Value
One of the benefits of a permanent life policy is the ability to accrue “cash value.” In its simplest form, the cash value within a policy is the balance remaining after a portion of a premium payment is applied to insurance costs. It is this feature that provides a few different uses for life insurance in retirement.
Using Life Insurance for Retirement Income
As the Simple Dollar explains, the cash-value account grows over time and can be withdrawn as a source of income in retirement. And provided the amount withdrawn doesn’t exceed the amount you’ve paid in premiums, it’s not subject to taxes either.
Borrowing From Yourself
You can also use life insurance for retirement by borrowing from your cash value. Think of it as a loan you’re getting from your future self. Technically, you’re not required to re-pay it, although it will accrue interest and ultimately, the loan amount will be deducted from the death benefit (i.e., the amount paid out to your family upon your death).
Paying Your Policy With Your Policy
If you’re reassessing your budget items in prepping for retirement, another thing worth noting for permanent life policyholders is the ability to pay upcoming policy premiums with your cash value.
What About Term?
How does your term policy fit in to all this talk about cash value? It doesn’t, because there is no cash value in term insurance. But it does bring up another conversation worth having: Do I need life insurance after I retire?2 When your term policy expires, you should consider factors such as your current income, debt, estate plan, and the self-sufficiency of your kids when weighing this important decision.