What to Know About Using Life Insurance to Fund Retirement


Retirement can be a huge source of stress considering the current cost of living and average social security benefits amount. You may be in your 20s, 30s or even 50s wondering how you’ll be able to ever stop working and survive in your golden years. Retirement should not be about settling for barely scraping by. After decades in the workforce, you deserve to enter a new chapter of your life and live comfortably.

One way to save for retirement is through life insurance. Whole, also called permanent, life insurance generates a cash value based on your contributions. Universal and variable life insurance policies do the same. Choosing the right type of coverage can offer your loved one’s protection and grant you peace of mind about how you’ll afford retirement. For this reason, retirement life insurance is an investment. You’ll have to carefully examine the cost and weigh it against what you stand to earn through your cash value. You can either settle your policy down the line, borrow against it or sell it to a third-party.

Consider How You Want to Save

If you have any dependents, you should have life insurance regardless of what you intend to use it for. If you decide to save money for retirement on your own, you may want to look into term coverage to get protection for your family for a fraction of the cost of whole coverage. When someone passes away, even a partner who works full-time can find themselves drowning in financial obligations. A home that once had two incomes covering the bills now only has one, so housing, food and child care are all jeopardized.

Term life insurance is much cheaper than permanent coverage, and while it doesn’t generate a cash value, it still offers a sizable death benefit for your dependents with much lower monthly premiums. For someone who decides to save their retirement funds independently, term coverage is the best form of coverage. Don’t overlook it just because you don’t intend on selling it later. In this instance, you may be interested in a decreasing term life insurance. Review this guide to learn how it works, and compare it with whole coverage that builds up cash value to decide which policy is best for your family and finances.

Consider Timing

Your life insurance cash value can be tax-exempt if you withdraw it before it exceeds your premium payments. This is where timing and budgeting come into play. You have to do some math and project how much you set to earn based on your contributions and decide when the best time to cash in will be. Avoiding taxes is one of the main reasons people like to use this strategy as a tip for saving money, and using their policies as a form of retirement funding.

Your Insurance Can Pay for Itself

Another important feature to note is that you can set up your policy to essentially cover its own premiums. By allowing your premiums to be taken from an existing cash value, you are able to save money and earn interest simultaneously. However, it’s important to note that the initial investment cost of whole life insurance is steep. There are upfront fees and hefty premiums that don’t make it a worthy asset for some people. You should always explore secondary options to settle on a savings plan that’s both affordable and profitable.

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Hi, I'm James George, the founder of Mind My Business NYC and author of this blog. I am an entrepreneur and internet marketer. My wish is that this website helps you to grow your business and achieve your goals.


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