Life insurance in retirement can be a tricky topic to navigate for planning professionals. The biggest question we hear from advisors and their clients is, “How can this policy benefit me while I’m retired?” To which our response is typically about how that depends on the client’s financial goals which have been determined with their financial professional. There are several ways in which a life insurance policy can benefit you while in your retirement years.
Using the Cash Value
One benefit of a permanent policy, such as Universal Life, is the ability to build cash value in the policy as premium payments are paid. The cash value can then be used in a variety of ways to fund retirement. The most common example of using the value in a policy is stopping premium payments and allowing the cash value to fund future premium payments.
Another option is borrowing from the policy itself. When you choose this option, you are essentially borrowing from your future self. While you are not required to pay back the “loan”, it will earn interest and be deducted from the death benefit when it is paid out.
Accelerated Death benefit
Another way that retirees use their life insurance policy to fund retirement is through an accelerated death benefit. An accelerated death benefit allows the insured to receive a portion of the death benefit while they are still alive. The amount that is borrowed from the policy is then subtracted from the face value and the beneficiary receives the reduced amount. Typically, an accelerated death benefit only applies when the insured is chronically ill and has a reduced life expectancy of less than 2 years.
A life settlement is the sale of an existing life insurance policy to an institutional buyer for an amount greater than the cash surrender value but less than the face amount. The lump-sum the policy owner receives can then be used to fund other areas of retirement, pay for medical expenses, fund long-term care, and more.
Take our Policy Value Questionnaire, a free tool, to see if a life insurance policy can potentially qualify for a life settlement. At Ashar Group, we specialize in securing fair market value for our clients. To learn more, contact us today.