Annuities, IRAs, and 401(k) plans seem to be synonymous with planning for retirement. But did you know that having a life insurance policy is another great way to add to your retirement savings? A supplemental source of income could give family members, including a spouse or special needs child, the financial security they need after you die.
Which Life Insurance Is Best For You?
Although most people are now living longer, not having life insurance for retirement is too big a risk to take for you and your family. If you die too soon, will your family be ok financially? Keeping your family financially stable after you die is important, and each family has specific needs. That’s why life insurance plans come in many different varieties. Below are the four main types of life insurance.
Term Life Insurance
If you want a more affordable life insurance policy that will help cover short-term finances, term life insurance might be what you’re looking for. It’s a 5-30 year plan that provides a standard death benefit. However, a person with this type of policy must die within the term (or the term renewal) of the policy in order for beneficiaries to receive a death benefit.
Luckily, there are level premium terms offered for term life insurance. A level premium term means that your monthly premium will remain the same. There is even an option to choose an “annual renewable term,” which means you can renew after one year of coverage. However, annual renewable terms are more expensive and rarely offered by insurance companies. If you are considering term life insurance in your retirement planning , keep in mind that it will be for the death benefit only.
Whole Life Insurance
Just as the name suggests, whole life insurance protects you for your whole life. Unlike term life insurance, whole life insurance is permanent. This means that as long as you pay your premiums your policy remains active.
In addition to having life coverage, whole life insurance premiums can also go toward building cash value over time that is tax-deferred, which the insurance company invests in. So, you won’t be taxed if at some point you need to take a loan against the cash accumulation fund. Essentially, you’re getting life insurance and cash accumulation wrapped into one policy. The cash accumulation portion of permanent life insurance is what makes it more beneficial than term life insurance as a retirement savings option.
Whole life insurance has more advantages than term life insurance, so the premiums are higher. But, you’ll be guaranteed a death benefit, level premiums (cost remains stable) and access to cash value. Most life insurance pricing is based on life expectancy, medical history, gender, as well as other factors.
Universal Life Insurance
Similar to whole life insurance, universal life insurance is a permanent policy with the ability to borrow against tax-deferred cash value. This may come in handy during your retirement period if an unexpected illness occurs. Universal life insurance gives you the flexibility to tailor the coverage and premium based on your needs. Combining the choice of term life insurance’s length of protection and the cash value accumulation of whole life insurance gives you a truly customized policy that fits your needs.
You get to choose when and how much you want to pay for your monthly premium. The premiums are lower than whole life insurance premiums because cash value is not always guaranteed.
Final Expense Whole Life Insurance
This plan is designed to help cover the costs of a funeral and outstanding debts you may leave behind. The average cost of a funeral is $10,0001, so final expense whole life insurance could help your family manage expenses when grieving.
Waiver of Premium
Most life insurance policies include a waiver of premium in its rider. That means in the event of a total disability, your premium will be waived. You will no longer be obligated to pay future premiums, but you will still receive coverage. If this is important to you, be sure to ask your insurance company or life insurance agent which policies include a waiver of premium.
How To Find Life Insurance For Retirement Planning
With multiple life insurance types and policies to choose from, it may be overwhelming to choose one on your own. Let HealthMarkets do the searching for you. A licensed HealthMarkets agent can help you find a life insurance plan for retirement that is within your budget and best fits you unique needs. Find your local licensed agent today.