Many people are confused about life insurance and how to best leverage their investment in a policy to meet their retirement savings goals. As a result, tough decisions often focus on selecting term versus permanent life insurance. But the reality is that both types of life insurance serve an important purpose, depending on your needs.
Here are some practical suggestions that may help you use your life insurance for a retirement strategy — and maybe even make it a significant part. Just remember, you will need to take into consideration your net worth and your specific objectives as you consider these options. If you are unsure about what to do or aren’t comfortable making these decisions on your own, find a local, trusted professional to help you.
Term life insurance
This can be a useful retirement tool for two reasons. It provides some financial protection to help your family if you die before accumulating significant savings. Because of the inexpensive (fixed) fees, it also enables you to divert some of your disposal income to other key areas, such as long-term disability insurance or an emergency savings account. Since the lower cost of term life frees up some of your income, you can take the opportunity to build an emergency fund for retirement or as you transition into retirement.
To protect you from any unexpected situations during retirement, or even prior to that, you should consider the role of long-term disability insurance in your strategy. Although many expect that Social Security will pay long term disability claims if necessary, these are difficult to qualify for and may not adequately cover the expenses you incur and still maintain your standard of living. You cannot count on Social Security if you are disabled.
Term life can be effective in supporting your retirement objectives by providing basic insurance and enabling you to broaden the scope of your financial alternatives. Using this tool gives you the freedom to thoughtfully craft an investment plan subsidized by the money you have saved by purchasing that term life policy. Without the burden of the fees associated with other life insurance policies, you can make the educated decisions that will enrich your retirement years.
Permanent life insurance
Despite the case made above for a term life policy, is often viewed as an essential option in any retirement plan. This is primarily because life insurance benefits can be used to replace lost Social Security benefits for a surviving spouse when his or her spouse passes away during retirement. This supplemental income can make an incredible difference for families that rely on these benefits. Additionally, and equally as importantly, when properly structured, a life insurance policy can provide tax deferred growth, tax free cash flow and even a tax free death benefit, all of which give you greater flexibility as to how you use your cash during retirement.
Whether your circumstances are best served by term life or permanent life insurance, it’s important that you seek the opinions and services of your trusted professional advisors so that you and your family are best protected during retirement.
Ken Bagner is a member of Sobel & Co. LLC. He is a member of the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. Plymouth Rock Assurance in NJ is proud to partner with NJCPA to bring you valuable tips about your financial health. Qualified members of the NJSCPA can receive a discount on their car insurance through Plymouth Rock Assurance in New Jersey.
