How To Use Life Insurance to Supplement Retirement Income
Enrique Torres, Life and Financial Product Specialist at Empower Brokerage, shares how to use life insurance for retirement. Specifically, permanent life insurance and how it can complement your retirement planning. Most of us think of saving money for retirement in either an employer-provided 401K retirement plan or individually through an IRA (Individual Retirement Account) or even through annuities. Another option when retirement-planning is cash-value life insurance, the most common form of Permanent Life Insurance. The different categories under Permanent Life are Whole Life or Universal Life, (i.e Indexed Universal Life.) In this video, Enrique discusses these permanent life options and how they can positively impact your retirement portfolio.
What Is the Difference between Universal Life and Whole Life?
Whole Life and Universal Life both have two main components:
- a death benefit – which is a sum of money paid to your beneficiary if you die. Heirs receive a tax-free death benefit.
- cash value – which is a tax-advantaged, cash-accumulation that earns investment interest (depending on your risk adversity). You fund the policy with premium payments that grow allowing you to access the principal and accumulation (tax-free) via withdrawals and loans.
Someone who is more conservative may go with a whole life policy because of the guarantees and the dividends paid into the policy. You have a more guaranteed death benefit and a more guaranteed cash value. However, with a Universal Life policy, or IUL, you can take advantage of market gains within various indexes such as the S&P 500 index, Global index, PEMCO index, etc. There are a variety of indexes that an agent can use based on the carrier they select. This determines how the growth is going to occur over time. Historically if the index performs well, there is a higher potential that the cash value increases more than a whole life policy. Keep in mind that life insurance may not be all of your retirement money, but it can serve to diversify and supplement your retirement income.
How Does Permanent Life Help With My Retirement Planning
Once you are ready for retirement, you can cash out the policy or withdraw in the form of tax-free “loans.” These loans can be spread out over time during your retirement years, say 15 years for example. The tax-free loans are what you use to supplement your retirement income. However, it is advised not to take out too much money in the form of loans. You want the policy to remain in place so that when you pass away the death benefit pays off any loan accumulation and the net difference is paid to your beneficiary tax-free for final expense or estate planning.
The Sooner The Better
Keep in mind, the younger you are when obtaining any of these plans the better because the cost of insurance is cheaper for someone who is young and healthy. As we get older, the cost of insurance increases. If you have any Medical Impairments (smoker, overweight, illness, etc) or have any Hazardous Avocations (skydiving, scuba diving, snowboarding, etc) this may result in higher rates when applying for life insurance. That means that more of the premium dollar goes toward the cost of insurance. If you are young and healthy more of the premium dollar goes toward growing the cash value. So, as you can see when it comes to Life Insurance, the sooner you get a policy the better.
Life Insurance Questions?
We hope this information on How To Use Life Insurance to Supplement Retirement Income is helpful. If you’d like to learn how we can help you plan your retirement pleas give us a call at (888) 539-1633
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