If you have someone depending on you, then life insurance is an important part of any retirement planning strategy. Above all things, life insurance is, after all, life insurance. But it can also provide an opportunity for some needed income in your retirement years.
There are three basic types of life insurance:
- Term Life Insurance: This is what is considered basic life insurance. The policyholder pays a set rate for a set amount of time (usually 10-30 years). If the policyholder dies during that time, then the insurance company pays out the death benefit to the beneficiary. Term Life insurance does not provide retirement income, as it does not accumulate cash value.
- Whole Life Insurance: These policies are designed to be in effect for the whole life of the policyholder. Premiums are required to keep the plan in effect. Many plans can accumulate cash value.
- Universal Life insurance: A type of permanent life insurance (primarily in the United States) that accumulates cash value that earns a specified interest rate.
Using the Cash Value of your Life Insurance policy in retirement
It usually takes 15 or more years before a policy will accrue enough cash value before it can be used as a form of retirement income. But once it does, most policies will allow you to borrow up to 90% of the cash value of the policy. They are considered loans, but they do not normally need to be repaid. However, if they are not repaid, the amount that the beneficiary receives will be reduced by the amount of the loan.
Depending on your particular retirement situation, the money can be used to pay off a mortgage, pay insurance premiums and medical bills, or as a form of income. There are a lot of questions that come up on life insurance for retirement income. We can help answer those questions, so talk to us today about your current insurance situation.