Benefits of Life Insurance
for Retirees
You may not think of the benefits of life insurance in retirement. This may seem especially true for people who have a high dollar amount in retirement savings. However, certain types of life insurance products can help retirees in a variety of ways. For example, some people may benefit by using indexed universal life insurance (IUL) as a way to produce tax-free* income. In addition, IULs may offer some people another place for their money once they have maxed out their retirement contributions. And, life insurance may be important when it comes to legacy planning as well.
Benefits of Life Insurance
Income possibilities are one of the lesser-known benefits of life insurance, particularly when it comes to an IUL. The basic idea of life insurance is to provide income for your family or loved ones after you pass away. Of course, with the right type of life insurance, you can make sure your family is secure. However, many people are unaware that life insurance may also provide an income to you during your life, as well.
Of course, an IUL could also be one aspect of your retirement savings plan. For one thing, the money may be accessible during emergencies. In addition, you may wish to use the money for college expenses for your grandchildren or children. Some retirees also use these life insurance funds to cover large purchases or expenses. In this way, they are able to keep the rest of their retirement savings accounts intact. To be sure, these options depend upon your policy type and your own situation. However, an IUL and other life insurance products may be able to offer more than just a death benefit.
You may have heard of a few life insurance types. For example, term life insurance is only held for a certain period of years. It pays a death benefit only if you pass away during the term of your policy if your premiums have been paid. And, it holds no additional value, typically. Indexed universal life (IUL) insurance is another category of insurance product. Typically, an IUL provides more benefits and options to a retiree than a term life insurance or even a whole life insurance policy would.
A max cash value IUL may provide other benefits, beyond a payout when you pass away. For example, some retirees may choose to take money out in the form of income. Technically, the income you take out is an overpayment of life insurance. Therefore, you may be able to take it out without paying taxes on that withdrawal. You may also be able to borrow against your life insurance policy. In this scenario, money paid to you is a loan and not income. Hence, you may receive it tax-free.
When Is Life insurance the Answer?
An IUL is not a solution for every retiree. There may be other solutions for you, depending on your situation and goals. However, there are some situations where an IUL may be a valid solution. Here are some conditions under which you might consider an IUL:
- You have maxed your 401(k), IRA, or another plan
- You are curious about tax-deferred or tax-free* strategies
- You’d like to have easy access to some of your money
- Income protection is important to you
- As a parent of a special needs adult child, you may need income for your child
- You like the idea of being able to pull out cash whenever you need it
- Stable income matters to you
- The income amount needed is less than your life insurance’s “cost basis”
Marathon Group Financial’s entire team is driven to help our clients learn as much as they can about their options. Life insurance is a truly important part of this. Work with us to help you learn which options are right for you. Reach out now for a life insurance policy review. There is no cost. As we discuss your details, we can review other potential choices and benefits. Protect your future. We are here to help.
You may have heard of a few life insurance types. For example, term life insurance is only held for a certain period of years. It pays a death benefit only if you pass away during the term of your policy if your premiums have been paid. And, it holds no additional value, typically. Indexed universal life (IUL) insurance is another category of insurance product. Typically, an IUL provides more benefits and options to a retiree than a term life insurance or even a whole life insurance policy would.
A max cash value IUL may provide other benefits, beyond a payout when you pass away. For example, some retirees may choose to take money out in the form of income. Technically, the income you take out is an overpayment of life insurance. Therefore, you may be able to take it out without paying taxes on that withdrawal. You may also be able to borrow against your life insurance policy. In this scenario, money paid to you is a loan and not income. Hence, you may receive it tax-free.
*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security. All figures herein are hypothetical and for illustrative purposes only to explain general concepts. No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.