Life insurance can be a great help for your surviving beneficiaries, but it can also be used as a tool to help you in retirement. And, different types of insurance policies can be useful in different ways.
Permanent Life Insurance
Universal and whole life are permanent policies, as long as you pay your premiums. Though more expensive than term insurance, these policies cover you for your entire life.
- Investments made with your premiums provide tax-deferred growth on interest, dividends and capital gains.
- You can borrow against the cash value of a permanent policy without paying taxes or penalties.
- Permanent life insurance can provide what are called accelerated benefits, which let you draw on the death benefit in the event you suffer a critical or terminally illness.
Whole and universal life are different in several ways.
- Whole life insurance:
- Fixed premiums
- Fixed death benefit
- Accumulated cash value
- Interest adjusted annually
- Universal life insurance:
- Flexible premiums
- Adjustable death benefits
- Interest is adjusted monthly
- Death benefit can be borrowed against
Permanent life insurance allows you to grow your investment, which you can tap into while in retirement. This can be a substantial amount in some situations, or can simply be a nice supplement to your retirement plan.
Term Life Insurance
Term policies give you coverage for a set time, usually 20 to 30 years. Although you can outlive the death benefit, they are less expensive than permanent insurance. This allows you to build up an emergency fund, invest for a bigger return during retirement and have more expendable income. You may be able to convert your term policy into permanent insurance if you want.
What is Best for You?
Which road to take depends on your income, retirement plan and other factors and circumstances. Talk to your insurance provider to help sort it out before making the decision that is best for you.