Many people only view life insurance as a way to take care of final expenses. While that is an important component, life insurance for retirement can also offer major advantages when it comes to planning out your Golden Years.
Two life insurance products used in retirement planning are permanent life insurance (coverage that’s in place your entire life that may build cash value) and annuities (a safe investment alternative that includes guaranteed interest rates, tax deferral and an option to have guaranteed income for life).
Even if you have options through your workplace, there are some definite advantages to permanent life insurance and annuities.
Advantage 1: Tax-free death benefit. While 401(k)s and traditional IRAs provide great incentives to save money, their benefits are taxable. This applies even after death—and estate settlement fees and probate fees can eat away at assets you earmarked for your loved ones.
Life insurance death benefits pass on totally tax-free. Meanwhile, interest and cash accumulations generated from a permanent life insurance policy or annuity are tax-deferred. (This means you can generally postpone paying taxes on the interest until you use the money.)
Advantage 2: Liquidity. Typically, you’re subject to an early withdrawal penalty if you use money from your 401(k) or IRA before age 59 ½. In contrast, you can typically borrow against the cash value of your permanent life insurance policy or annuity without facing a penalty.
Advantage 3: Flexibility. Traditional IRAs, Roth IRAs and 401(k)s have annual deposit limits that restrict how much you can contribute each year. IRAs also have income restrictions. Permanent life policies and annuities can be structured to allow you to deposit as much money as you want, regardless of your income.
Advantage 4: Affordability. It is estimated that 58 million Americans are uninsured or underinsured when it comes to life insurance. Many forgo coverage because they overestimate the price by as much as 300 percent. Life insurance policies come in a wide range of prices to fit any person’s budget.
Advantage 5: Security. In addition to a tax-free guaranteed death benefit, permanent life insurance can also offer a guaranteed cash value. Annuities, which can offer a guaranteed payout for as long as you live, also offer a high degree of security.
Does life insurance for retirement sound like something, or someone you love, could benefit from? If so, contact us at Pardrdige Insurance (815-758-4447) to learn more.
| November 10, 2014
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