Strategies to Use Life Insurance for Retirement
Life and Financial Product Specialist Enrique Torres shares strategies for using life insurance for retirement with permanent life insurance and how it can complement your client’s retirement planning. Most clients 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 tool in the retirement-planning toolbox is cash-value life insurance, the most common form of Permanent Life Insurance. Under Permanent Life are categories: Whole Life or Universal Life (Indexed Universal Life.) In this video, Enrique discusses these permanent life options and how they can positively impact a retirement portfolio.
Universal Life vs Whole Life
Both policies – Whole Life and Universal Life – have two components:
- A death benefit is a sum of money paid to your client’s beneficiary if they die. Heirs receive a tax-free death benefit.
- Cash value is a tax-advantaged cash accumulation that earns investment interest (depending on their risk adversity). Clients fund the policy with premium payments that grow, and it allows them to access the principal and accumulation (tax-free) via withdrawals and loans.
The main differences between a universal life insurance plan and a whole life insurance plan vary. Universal life policies typically have flexible premiums, and whole life has a fixed premium. With whole-life policies, however, their premiums are higher. Universal life policies have lower ones. With whole life insurance, there is a chance of an increase in death benefits for plans and the potential chance for cash value accumulation. However, with whole-life plans, the death benefit is guaranteed, and you are guaranteed to have an increase in cash value accumulation.
Someone who is more conservative may go with a whole-life policy because of the guarantees and the dividends paid into the policy. As stated previously, they have a more guaranteed death benefit and a more guaranteed cash value. However, with an IUL policy, clients 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 client’s retirement money, but it can serve to diversify and supplement their retirement income.
How Will Permanent Life Help My Clients’ Retirement Planning
Once they are ready for retirement, your clients 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, for example, 15 years. The tax-free loans are what they use to supplement 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 your client passes away, the death benefit pays off any loan accumulation, and the net difference is paid to their beneficiary tax-free for a final expense plan or estate planning.
The Younger/Healthier The Better
Keep in mind, the younger you get 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 your client has any Medical Impairments (smoker, overweight, illness, etc.) or has any Hazardous Avocations (skydiving, scuba diving, snowboarding, etc.) this may result in higher rates when applying for life insurance. This situation means that more of the premium dollar goes toward the cost of insurance. If your client is 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.
Agents
We hope that this information on life insurance for retirement is useful to you.
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This article was updated on 2/17/25.
