Nervous to Retire? Put your Life Insurance Policy to Work.

Nearly half of the American population is not prepared to retire.[1]  In fact, over half of Americans admit that they must work longer than planned to comfortably retire.[2]

The pandemic and the current economic environment placed greater financial pressures on consumers as many have had to reprioritize their finances toward immediate concerns, such as growing utility bills, inflated grocery bills, and rising gas prices.  The consumer price index rose 8.5% between March 2021 and March 2022, with gas prices skyrocketing by 48%.[3]  Beyond inflation, COVID heavily disrupted families by losing entire household incomes due to lack of childcare during COVID surges, leaving parents with no other option than to quit their jobs to take care of their children at home.[4]

Even with Americans feeling the strain in their pocketbooks, life insurance applications surged during the pandemic, sighting the largest rise in over 25 years.[5]  Propelled by the fear of COVID’s result on mortality rates, many individuals are noticing the importance of insurance as a tool to build financial security for themselves and their families should the unexpected loss of a loved one further disrupt or completely upend household finances.  However, little do consumers know, life insurance can be used as a tool that reaches far beyond a death benefit. 

Life insurance can assist in reaching one’s retirement goals.  For example, whole life or universal life policies can accumulate cash value.[6] Whole life and universal life insurance policies fall into the category of permanent life insurance.  Permanent life insurance are policies that do not expire and promise payment of a specified death benefit within a specified time in the future.  Whole Life offers premiums that stay fixed over the life of the policy and cash value increases at a fixed rate of return.[7]  Universal Life has a flexibility in setting death benefits and premium payments.[8]  Policy cash value is dependent on premium funding level, amount of interest credited, and applicable charges.[9]   With these types of policies, the policyholder doesn’t have to die to receive benefits.  Rather, the policy holder can take the accumulated cash value out at any time.[10] 

Another point of note is that permanent life insurance cash accumulations are tax free, which has the potential to cut one’s tax bill.  Permanent life insurance has the ability to reduce taxes both before and after death by transferring assets tax free to beneficiaries as well as building tax deferred cash growth.[11]  This means that death benefits that are transferred to one’s beneficiaries will be 100% tax free.[12]  This is much different than inheriting a individual retirement account (IRA), where beneficiaries could lose up to .35 cents of every dollar to taxes.[13]  Additionally, any premiums paid to your permanent life insurance can shelter assets from taxation.[14]

While inflation and the “pandemic” economy may continue to linger in the background, navigating immediate spending pressures and other unforeseen financial obligations while still planning for the road ahead is within reach.     Life insurance products offer consumers other financial options to meet them where they are at financially and provide greater piece of mind when it comes to planning for a comfortable retirement. .  While getting educated on life insurance policies and what they can do for you and your family might not be at the forefront of the to-do list, it is critical to understand how you can utilize these products to be one of the Americans that are looking forward to retiring without financial fear. 

[1] 41% of Americans say it’s ‘going to take a miracle’ to be ready for retirement, report finds; The New Road to Retirement, CNBC; Jessica Dickler;  36% of Americans say they won't have enough to retire, report finds (cnbc.com) (Sept 14, 2021).

[2] Id.

[3] 20 Groceries Driving Up Your Food Bill The Most; 24/7 Wall; Liz Blossom; 20 Groceries Driving Up Your Food Bill the Most – 24/7 Wall St. (247wallst.com) (Apr 19, 2022).

[4] For Low-Income Parents, No Day Care Often Means No Pay; Economy, the Washington Post; Abha Bhattarai and Alyssa Fowers; Covid child-care disruptions hit low-income households harder - The Washington Post (Feb 22, 2022).

[5] COVID Drives Biggest Increase in Life Insurance Payouts Since 1918; Daily Mail; Melissa Koenig;  COVID drives biggest increase in life insurance payouts since 1918 (msn.com) (Dec 10, 2021).

[6] How Does Life Insurance Create Retirement Income?; The Insurance Pro Blog; Brandon Roberts; How Does Life Insurance Create Retirement Income? (theinsuranceproblog.com) (Feb 1, 2018).

[7]Life Insurance: Your Guide to the Basics; Finances; The Porch; Lauren Caggiano; Life Insurance: Your Guide to the Basics (ruoff.com) (Sep 21, 2021).

[8] Universal Life Insurance; The Zebra; Kristine Lee; Universal Life Insurance: What to Know | The Zebra (Apr 21, 2022).

[9] Id.

[10] Id. at 6.

[11] Cut Your Tax Bill With Permanent Life Insurance; Life Insurance, Investopedia; George D. Lambert; Cut Your Tax Bill With Permanent Life Insurance (investopedia.com) (Jan 24, 2022).

[12] Id.

[13] Id.

[14] Id.