What does your retirement fund look like? According to a recent Bankrate survey
, one-fifth of adults in the United States don't add money regularly to their savings. If you fall into the no or low-saver category, using your life insurance to fund your retirement is an option. Before deciding to (or not to) use this method, take a look at what you need to know about paying for retirement with life insurance.
What Type of Life Insurance Do You Have?
Not every life insurance policy can pay out benefits during your lifetime. The first step in deciding whether you should use your life insurance to partially fund your retirement is knowing if you can legally do so.
If you're not sure what type of life insurance you have, speak with your agent about your specific policy. In general, these are the primary types of life insurance policy options:
- Permanent or whole life.
After investing to a set point (through premium payments), it's possible to cash-in the policy instead of waiting for the benefits to pay off after the policyholder's death.
- Term.
This type of policy only pays a death benefit during a set term (or period of time). You cannot cash-in this type of policy or use it for retirement.
Along with the broad types of policies you may find subtypes that fall under each of these categories. Permanent life insurance policies include traditional whole life, universal life, and variable life. Term policies can include either a level term or decreasing term.
What Do Your Dependents Need?
Do you have a spouse or other family member who is financially dependent on you? If the answer to this question is yes, seriously consider what using your life insurance for your retirement will mean to them. Talk to your insurance agent and a financial planner about the pros and cons of either option. Consider these factors:
- The cash value.
If your insurance policy has a significant cash value, you may be able to use some of the money now and leave some to your dependents in the result of your death.
- The abil ity to invest.
Can you use some of the insurance money as an investment? Putting aside a small sum now may leave a larger cash value for your dependents later on.
- The ability for your deponents to pay.
A dependent spouse, adult child, or other family member may not have financial freedom right now. But that doesn't mean they won't become a primary breadwinner down the road. If your dependent has the ability to stand on their own, you may not need to worry about saving for them.
Instead of assuming that your dependent can't earn money, discuss the possibility of life insurance death benefit alternatives. A candid conversation with your dependents can clarify financial needs and help you to make an informed decision.
What Other Savings Do You Have?
You can fund your retirement in plenty of ways. If you have an existing IRA, 401(k), or another fund, withdrawing or borrowing from your life insurance policy isn't always the easiest answer — especially if you're in good health.
But if you're one of the many Americans who doesn't have a nest egg, you may need your life insurance now to pay for your future.
Do You Want to Cash Out or Borrow?
Funding your retirement with money from your life insurance policy isn't always an all or nothing choice. Instead of withdrawing the full cash value, you may also have the option to borrow. For some policyholders, cashing in the full policy makes the most financial sense. Receiving a bulk payment gets you a larger sum of money at one time and makes more sense than holding on to an existing unwanted or unaffordable policy.
If you need funds now, and have the ability to repay them, borrowing from a life insurance policy is often a lower-interest option that can save you money. That is, in comparison to a traditional bank loan or to using credit cards.
Do you need money from your life insurance? Contact Habersham Funding LLC
for more information.
