Should Life Insurance Be Part of Your Retirement Plan?

There are benefits to incorporating a life insurance policy into your retirement plan to protect your loved ones.
Understanding a Strategy to Protect Your Loved Ones After You Pass

As you approach retirement, protecting your assets and providing for your loved ones becomes a top priority. A great way to satisfy both of these goals is to purchase life insurance. In fact, life insurance can be an incredibly beneficial component of a comprehensive retirement plan. If you’re looking to explore ways that you can maximize your income in retirement while also protecting your loved ones, read on to learn more about how life insurance can help you achieve your retirement goals.

Life Insurance Basics

Life insurance is a contract between you and an insurance company. You pay premiums, and in exchange, the insurer promises to pay a death benefit to your beneficiaries if you pass away. The amount of the death benefit and the cost of the premiums will depend on the type of policy you choose, as well as your age, health, and other factors.

There are two main types of life insurance:

Term life insurance provides coverage for a specified period, such as 10, 20, or 30 years. If you pass away during the term, your beneficiaries will receive the death benefit. Term life insurance is typically less expensive than permanent life insurance.

Permanent life insurance, also known as whole life or universal life, provides coverage for your entire life as long as you pay the premiums. These policies also include a savings component that can accumulate cash value over time. The premiums for permanent life insurance are generally higher than for term life insurance.

SEE ALSO: A Strategy for Making the Most of Your Retirement Savings

How Life Insurance Can Boost Your Retirement Planning Efforts

There are several ways in which life insurance can be utilized as a part of your retirement planning strategy:

Providing Income Replacement 

If you pass away during retirement, your loved ones may need income to replace the income you were providing. Life insurance can provide a death benefit that can help them cover their expenses and maintain their lifestyle. This is especially important if you’re the primary breadwinner or if your retirement income is necessary to support your spouse or dependents.

To determine how much life insurance you need, consider your current and future expenses, such as housing, food, and healthcare. You should also consider any outstanding debts you have, such as a mortgage, car loan, or credit card debt.

Paying Off Debt

In addition to providing income replacement, life insurance can help pay off debt. If you have outstanding debts, such as a mortgage or car loan, life insurance can help ensure that those debts are paid off in the event of your passing. This can provide peace of mind and relieve your loved ones from the burden of paying your debts after you pass.

Funding Your Legacy

If you want to leave a legacy for your loved ones or a favorite charity, life insurance can help you do so. You can name your beneficiaries, which are the people who will receive the death benefit when you pass away. This can provide a tax-efficient way to transfer wealth to the next generation or support a cause that’s important to you.

It’s important to periodically review your beneficiaries to ensure that they reflect your current wishes. If you’ve experienced a significant life change, such as a marriage, divorce, or the birth of a child, you may need to update your beneficiaries accordingly.

SEE ALSO: The Benefits of Gifting Your Grandchildren Trusts

Providing Tax Benefits

If you have a permanent life insurance policy, you may be able to reap additional tax benefits as you can build up cash value over time. This cash value grows tax-deferred and can be used to supplement your retirement income. Additionally, the death benefit is generally tax-free to your beneficiaries.

However, it’s important to note that accessing the cash value of a permanent life insurance policy can be complex and may result in surrender charges, fees, and taxes. So, you may want to work with a financial advisor to understand the implications of accessing your policy’s cash value.

Fitting Life Insurance into Your Retirement Plan

Determining how much life insurance you need can be a complex process that requires careful consideration of your individual financial situation and unique retirement goals. If you’re interested in learning more about how life insurance can fit into your overall retirement plan, consider reaching out to the team here at Andersen Wealth Management.

At Andersen, we specialize in helping individuals and families create customized retirement plans that align with their unique goals and priorities. We can help you evaluate your life insurance needs, choose the right policy, and ensure that your coverage is up to date as your circumstances change. To learn more about how we can help you achieve your retirement goals, book a call with us today. We look forward to hearing from you!