Retirement Planning With Life Insurance
Life Insurance Retirement Planning – A Retirement Planning Supplement
THE CHALLENGE
Like many high-income earners, your client may be maximizing their employer’s retirement plan contributions while also diversifying their total financial portfolio. But even while contributing to the limit, they may not be confident they’ll have enough income to maintain their desired standard of living during retirement. If this sounds like your client, consider how a life insurance policy may help them create supplemental retirement income.
THE STRATEGY
Most of us are familiar with the need to have life insurance for the death benefit protection it provides to help loved ones carry on financially. However, many are unaware that life insurance can also play an important role as a supplemental source of income once they reach retirement. Life insurance’s primary purpose is to provide loved ones with a death benefit that’s typically income-tax-free. In addition, because of the unique tax treatment life insurance receives, it also has the ability to accumulate cash value and allow clients tax-advantaged access to their policy’s cash values through loans and withdrawals.
WHY CONSIDER A LIFE INSURANCE STRATEGY?
Tax-free death benefit Help ensure loved ones are taken care of if your client is gone. Tax-deferred cash value Accumulate cash value in their policy without the impact of taxes. Tax-advantaged access Access the cash value of the policy when they need it and without taxes.
POTENTIAL BENEFITS
• They pay premiums to the policy. Part of these premiums will cover the costs associated with the policy, and the rest will go toward an account that helps build cash value.
• Over time, the policy potentially builds cash value on a tax-deferred basis, meaning ongoing income taxation does not reduce growth.
• Once they reach retirement (although they don’t need to wait until then), they can access the cash value through loans and withdrawals (typically federal-income-taxfree) to provide them supplemental income when they need it.
• At your client’s death, the remaining death benefit will be paid, typically income-tax-free, to their beneficiaries.
IMPORTANT CONSIDERATIONS
• This strategy works best when the life insurance death benefit is minimized. You will want to make sure the death benefit is appropriate for their situation. If your client’s financial situation changes and they need to use assets or income for current or future income needs and can no longer make premium payments, their life insurance death benefit may terminate and their desired results may not be achieved. Loans taken will become taxable upon policy surrender or lapse.
• Taking loans and withdrawals will reduce cash value as well as the death benefit.