When planning for retirement, the traditional advice is to invest in options like 401(k) plans, IRAs or pensions. However, there’s another option to put into your retirement tool kit: life insurance policies.
While life insurance is useful to have as a safety net for family should you pass away, it can also help you out while you’re still alive to enjoy the benefits of retirement. Below, experts detail the double benefits of buying life insurance policies.
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1. Whole Life Insurance Builds Cash Value
Whole life insurance is more than just a death benefit, according to James DesRocher, founder of TrueView Financial.
“The cash-value component is what sets it apart from other types of life insurance. As you pay your premiums, a portion of each payment goes into a cash-value account, which grows over time,” he said.
Even better, the growth of that cash value is guaranteed regardless of market conditions. “This offers peace of mind, knowing that your asset is steadily increasing in value year after year,” DesRocher said.
2. Tax-Advantaged Growth and Access
Additionally, the cash value in a whole life insurance policy grows on a tax-deferred basis, meaning you don’t pay taxes on the gains as they accumulate. This allows your wealth to compound more efficiently over time.
“Additionally, when you access the cash value through policy loans, those funds are generally tax-free, providing a significant tax advantage compared to other retirement accounts,” DesRocher said.
3. Flexibility and Liquidity
Unlike many retirement accounts that have restrictions and penalties for early withdrawals, the cash value in a whole life insurance policy is accessible at any time, for any reason.
“Whether you need funds for an emergency, a major purchase or to supplement your retirement income, you can tap into your cash value without worrying about penalties or taxes. This flexibility makes whole life insurance a valuable financial resource throughout your life,” DesRocher said.
However, keep in mind that any amount borrowed and not paid back will reduce the death benefit, according to Stephen Kates, CFP and principal financial analyst for Annuity.org.
“This dual purpose allows permanent life insurance to be a more flexible product, but at a cost roughly five to 10 times higher than an equivalent death benefit on a term policy. The earlier a policy is purchased, the lower the cost is likely to be, given typically better health and assumed mortality statistics,” he said.
4. Hybrid Life Insurance Can Support Long-Term Care Needs
Another type of life insurance to consider, Kates said, is hybrid life insurance with long-term care riders, which can support retirees who need long-term care in their old age. The policy will support payments for care that subtract from the death benefit.
“Any money left will be passed on to heirs,” he said. “While this is primarily a healthcare need, data from the Center for Retirement Research at Boston College shows that roughly 4 in 5 retirees may require some care during their retirement.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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