How to use Life Insurance for Retirement
Posted :
Updated :
Key takeaways
- Permanent life insurance can build cash value over time. You may be able to use it in retirement.
- You may take withdrawals or loans from your policy’s cash value. This can help supplement retirement income.
- Cash value can also help cover future premiums. This can reduce your out-of-pocket costs.
- Term life insurance does not build cash value. A life insurance agent can help you decide what fits your retirement goals.
Retirement-based life insurance typically refers to using a permanent policy, often as part of a life insurance retirement plan (LIRP) to build cash value to support income later in life. As you look ahead to retirement, your policy may offer a source of income that can help maintain your lifestyle.
How a life insurance retirement plan (LIRP) works
A life insurance retirement plan, or LIRP, is a strategy that uses a permanent life insurance policy to build savings while maintaining a death benefit for your beneficiaries. It is not a standalone retirement account. Instead, it works alongside other retirement vehicles such as a 401(k) or IRA as part of a broader financial plan.
When you pay into your permanent life insurance policy, a portion covers the cost of your coverage while the remainder goes into a cash value account. This cash value grows over time on a tax-deferred basis. The rate of growth depends on the type of permanent policy you hold and its specific terms.
Once you have built sufficient cash value, you may be able to make withdrawals or take out policy loans to help supplement your retirement income. Withdrawals up to the amount of premiums paid are generally not subject to income tax. Policy loans are also generally tax-free, though unpaid balances accrue interest and reduce the death benefit over time.
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. This that provides a few different uses for life insurance in retirement.
Using life insurance for retirement income
Your cash value account grows over time and can be withdrawn as a source of income in retirement. As long as the amount withdrawn doesn’t exceed the amount you’ve paid in premiums, it’s not subject to taxes. 1
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 repay it, but it will accrue interest. The loan amount you take out will be deducted from the death benefit (i.e., the amount paid out to your family upon your death 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 if you have term life insurance policy?
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 you need life insurance after you 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.
Start planning for a retirement that works for you
Life insurance can do more than protect your loved ones. For the right person, a permanent life insurance policy can play a meaningful role in building tax-advantaged savings and supplementing retirement income.
Understanding your options is the first step. Speak with a life insurance agent today to find out whether a life insurance retirement strategy fits your financial goals and long-term plan.
Frequently asked questions
It depends on the type of policy you have. Some permanent life insurance policies offer flexibility to adjust your coverage or premium payments over time. Term life insurance policies, however, have fixed terms and do not offer the same flexibility. Speak with a life insurance agent to understand what changes, if any, are available under your specific policy.
Your death benefit is paid to the beneficiaries you name in your policy. You can typically name one or more individuals, a trust or a charitable organization. It is important to keep your beneficiary designations up to date, especially after major life events such as marriage, divorce or the birth of a child.
Permanent life insurance, such as whole life or universal life, is generally better suited for retirement planning because it builds cash value over time. Term life insurance does not build cash value and expires at the end of its set period, making it less practical as a retirement income tool. The right choice depends on your financial goals and coverage needs.
If you hold a permanent life insurance policy, your coverage continues in retirement as long as you meet the terms of your policy. You may also be able to use the accumulated cash value to supplement your retirement income or cover premium payments. If you hold a term life insurance policy, your coverage ends when the term expires, regardless of whether you have retired.
A LIRP uses permanent life insurance to build cash value you may access later. A Roth IRA or 401(k) is a dedicated retirement account. They can work together, but they serve different purposes and have different tax rules.
Citations:
1 Investopedia: ‘’How Cash Value Builds Life Insurance Policy?’’ by Amy Bell, November 03, 2025 https://www.investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp
2 Investopedia: “Do You Need Life Insurance After You Retire?” by Tim Parker, December 3, 2019 https://www.investopedia.com/articles/personal-finance/010716/do-you-need-life-insurance-after-you-retire.asp (opens in a new tab)
This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only.
Loans and withdrawals will reduce the death benefit and the cash surrender value and may cause the policy to lapse. Lapse or surrender of a policy with a loan may cause the recognition of taxable income. Withdrawals in excess of the cost basis (premiums paid) will be subject to tax and certain withdrawals within the first 15 years may be subject to recapture tax. Additionally, policies classified as modified endowment contracts may be subject to tax when a loan or withdrawal is made. A federal tax penalty of 10% may also apply if the loan or withdrawal is taken prior to age 59 1/2. Cash value available for loans and withdrawals may be more or less than originally invested. Withdrawals are available after the first policy year.
Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02210 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595.
MLINY071726801-1