Most people think of life insurance as a way to provide for your beneficiaries in the case of your death. But it can be used in many ways to help supplement your retirement benefits. Your financial planner or attorney can discuss all the options with you, which could include:
1. Borrowing Against Permanent Life Insurance
If you have a whole permanent life insurance policy, some of the premiums go into an account that builds cash value. If you’ve hit a rough financial patch, you may be able borrow against this cash value. If you’re younger than 70, withdrawing from a life insurance policy also may allow you to defer taking Social Security benefits and letting the benefit amount grow. One caveat: The death benefit for your beneficiaries will be reduced by the amount you borrow.
2. Saving Money with Term Life Insurance
Term life insurance, as opposed to permanent, covers you for a set amount of time, depending on your preference. Term life insurance is less expensive than permanent insurance because with a permanent policy, the insurer ultimately will have to pay. With a term policy, payment is only made in the case of death within the policy term. Since you’ll be spending less for term insurance, you could use the savings to buy a long-term care insurance policy or to invest using a brokerage of your choosing. Term policies also can provide financial protection for family members.
3. Investing with Universal Life Insurance
Universal is a form of permanent life insurance. In addition to building cash value, universal also is flexible because your premiums go towards the policy cost and then you’re able to invest the rest. Your returns are based on how well your investments do, and you could use them to supplement your retirement income.
4. Converting to an Annuity
If you have a permanent life insurance policy, by retirement you probably had a substantial amount of cash value in your policy. One option may be to convert it to an annuity to create a regular source of income.
There are pros and cons to every life insurance policy, but if you’re thinking of using it during your retirement, talk to a financial adviser to decide which one is the best fit for you.