Saving for retirement is not an area of strength for many Americans today. According to one recent survey, one-third of Americans have no retirement savings at all, and 23% have less than $10,000 saved. Whether it's lack of education or a shift in priorities, the idea that so many people in this country will be entering retirement with little to live on is disturbing at best. One potential saving grace lies in the hidden value of some life insurance policies. Here are just four ways that your life insurance policy can provide some security in retirement.
Cash Value Benefits
If you have a whole life policy, a cash value component accumulates over time. When you reach retirement age (or before), you can either make direct withdrawals from your policy or you can borrow against the accumulated value of your policy. These funds can be used to meet your expenses in retirement, and any borrowed funds are paid back out of the insurance proceeds when you die.
Family Protection Long-Term
Most retirement plans are set up to take care of more than one person. If you are worried about the well-being of a spouse after you're gone, you have good reason. Other benefits such as social security and pensions are likely to be reduced when you die so a life insurance policy can protect your family's future by replacing these lost income sources.
Tax Benefits of a Life Insurance Policy
Taxes are a valid concern in retirement, and a life insurance policy can provide many tax benefits. If you have a permanent life policy, the investment component will grow in a tax-sheltered status, allowing a greater accumulation of wealth over time. When your life insurance proceeds are paid out to beneficiaries, these are paid on a tax-free basis. If you were to grow these investments outside of a life insurance policy, the gains would be taxed upon transfer to your heirs. Finally, if your heirs would be subject to an estate tax or any other taxes upon your death, the payout from a policy can help meet these obligations.
Sell Your Policy
Did you know that you can sell your life insurance policy for a healthy sum of cash? This is a little-known fact, and the process is called a "life settlement." This type of transaction can be completed on either a term or whole life policy but is more common with whole life policies. Candidates for life settlements are typically over the age of 65 with a policy whose market value is at least $100,000. Life expectancy and health impairments are also taken into account for these types of sales.
A life settlement is not the best choice for everyone. For example, if you have a permanent life insurance policy with a cash value component, it may be better to draw on this to pay your premiums until this value is exhausted. Then, you still have life insurance coverage without the monthly premium payment. If you want to consider a life settlement at a later date, you'll still have the option.
Saving for retirement continues to be elusive to many Americans. Fortunately, there are ways to tap into your life insurance coverage to provide some additional security in those retirement years. Contact us with any questions about our coverages or to request a quote.