Why Life Insurance May Have a Place in Your Retirement Plan

Published on Tue, 11/08/2016 - 00:18
life insurance retirement plan

Planning for a financially secure retirement entails more than choosing the right investments. In its most simplified terms, a retirement plan is a combination of a plan to accumulate sufficient wealth and another plan to distribute the wealth. Your advisor may recommend life insurance as a part of the retirement plan because it provides advantages for both the accumulation and the distribution phases. Below are just a few ways life insurance adds flexibility and value to a retirement plan.

Life insurance as part of the accumulation plan

Essential to most accumulation plans is to maximize contributions to tax-qualified retirement plans such as 401(K), IRA, and Roth IRA. Tax-qualified plans come with annual contribution maximums. The 2016 cap on 401(k) contributions is $18,000; the maximum contribution to an IRA is $5,500 if you are under 50 and $6,500 if 50 and older. Roth IRA contribution maximums are determined by income level as well.

If you are in a position to contribute more to your retirement plan, your advisor may recommend a permanent life insurance policy. The annual policy premium is not subject to the same IRS maximums. The value of the policy increases each year. And the increase in value is tax-deferred. Think of a permanent life insurance policy as another growing asset in your retirement portfolio. A permanent life insurance policy also offers the security of guaranteed cash value adding stability to the retirement portfolio.

Life insurance as part of the distribution plan

Perhaps one of the most attractive features of a permanent life insurance policy are the countless ways the value of the policy can be used. For many people, leaving a financial legacy can be a very important goal. Life insurance is uniquely positioned to transfer wealth, tax-free, to policy beneficiaries. The death benefit is usually distributed tax-free and without passing through probate.

Also, in most cases, policy values can be easily accessed and used for other purposes. Unplanned health-care and long-term care expenses are often the largest risk to a retirement distribution plan. Life insurance cash values can be borrowed or withdrawn and used to pay for these expenses. In most cases, borrowed values are not taxable and do not need to be repaid. Instead the death benefit will be reduced by the amount of the outstanding policy loan.

Your financial advisor considers all aspects of your retirement plan – from growing assets according to your risk tolerance, to anticipating the unexpected, and ensuring assets last for your lifetime. Adding life insurance as part of the overall strategy is often a wise move. Ask your advisor to tell you more about how life insurance might benefit your retirement plan.

Heffernan Insurance Brokers has a broad range of expertise in retirement planning. We believe each client situation warrants a unique strategy. We serve the retirement and insurance needs of businesses, business owners, and individual. Our goal is to help clients keep the money they’ve earned.  Call us at 800-437-0045 to learn how we might serve you.