Life Insurance Can Help Fund Retirement
Virginia Beach, VA (Law Firm Newswire) January 23, 2015 – Permanent life insurance policies can be used not just to guarantee income for one’s heirs in the case of untimely death, but to fund retirement. Policyholders can withdraw from the policy’s cash reserve in certain circumstances.
“Using life insurance to fund retirement is not for everyone, but it can be a valuable strategy for people who have maxed out other retirement accounts and who can afford a policy,” said Andrew Hook, a Virginia elder law attorney with Hook Law Center, which has offices in Virginia Beach and northern Suffolk.
Life insurance is not a perfect investment tool. Policies usually have a relatively high cost and do not have much liquidity. Cash value accounts typically maintain about 3 percent growth, and investment choices may be limited.
There are benefits, though. For example, cash values are not correlated to stock market returns, so they do not decrease in value when interest rates rise.
Life insurance is not used as a front-line retirement account. Instead, it is recommended that individuals contribute the maximum amount to their IRA and 401(k) before considering life insurance policies for retirement planning.
Since premiums for permanent life insurance policies are significantly higher than for traditional term policies, life insurance should only be used as an investment vehicle by people who can comfortably budget for it. Otherwise, the bills can become difficult to pay.
Investing in a life insurance policy can especially make sense for people who plan to retire early. Because traditional retirement accounts require the individual to wait until turning 59 1/2 to begin making withdrawals without facing penalties, a life insurance policy can be used during the early years of retirement.