13 Oct How Can Your Life Insurance Policy Help You Plan Your Retirement?
NAIC defines life insurance as financial protection for beneficiaries in the event of the policyholder’s demise. However, it can also be used as a backup plan for retirement. In the U.S., the average retirement age is 67. With the current advancement in technology and improvement in the health sector, it is imperative to have a retirement plan. This article contains ways in which your life insurance policy can be used as a retirement plan.
What Is A Life Insurance Retirement Plan?
A life insurance retirement plan is a dual-purpose insurance. It provides life coverage as well as a retirement plan or a pension plan; think of it as cost-effective long-term savings. The insurance is usually a permanent life insurance policy with an option for catering for retirement.
How Does It Work?
Life insurance retirement plan is a cash value kind of insurance; therefore, like every other kind of insurance, it requires a monthly fee – premium to be paid regularly. This premium is then used in two ways. One part is used for insurance coverage, and the other part is invested.
Types of Life Insurance Retirement Plan
Unit Linked Insurance Plan
This plan has a higher risk as well as higher profit return. It allows you to save up for retirement and some tax-free expenses such as paying tuition.
Whole Life Plan
As its name implies, the whole life plan is an insurance plan that caters to your whole life, and you can keep the coverage as long as you pay the premiums. Buying whole life as a retirement plan means a life of maturity benefits.
This plan provides either a minimum guarantee amount or a full guarantee amount. It offers minimum investment risks, defined coverage, and tax benefits.
Phases of Life Insurance Retirement Plan
The retirement plan comes in two phases: the accumulation phase and the annuity phase.
In this phase, premiums are paid throughout the term of the policy during the policyholder’s earning years – when the policyholder is still working. In other words, this period is the time for saving towards retirement. Cash value is built at this time, and profits made are reinvested.
This stage is the last phase of the retirement plan. It is when the profits made from investments are converted into installment income (annuities) and are paid out. The length of this phase can either be short or long, depending on the payouts and invested amounts. However, the profit made from the investments is taxable.
There are different types of annuities:
With this kind of annuity, policyholders can defer payments until a future date when it is more beneficial. One advantage of deferred annuity is the additional interest made during the period of deferment.
In this kind of annuity, a fixed amount of interest is paid to the policyholder, irrespective of the profit or loss made.
With this kind of annuity, the policyholder can make several investments. Also, the payment is dependent on the profit made or the risk involved. In other words, the success of the investment determines the annuity value.
Interested in learning more about life insurance retirement plans? Contact Kevin or Marci at Dougherty Insurance. We have the answers to important life insurance questions that will allow you to make the right decision when it comes to protecting your family’s future. Take the time to make the call today!