There are many viable options for planning for retirement, but how many of you have considered using your life insurance policy in order to plan for retirement? Although you may consider life insurance to be the main way you will provide for your family in the event of an unfortunate incident, did you know you could also use a whole premium life insurance plan for your own retirement savings?
This can be a great option for some people, but there are several things you should consider before choosing such a plan for your own retirement investment.
How Does Life Insurance Work as a Retirement Plan?
Put simply, at some point in time, you purchase the type of plan that enables you to put away additional funds towards the initial cash value of the policy. Should you unfortunately meet your demise, the policy will be granted to whomever you choose as a beneficiary. However, should you reach retirement age and find that you no longer need life insurance, the cash value of what you have invested over all those years can be cashed in tax-free.
How Well Does This Actually Work?
All investments come with some sort of risk, and the investment in a life insurance policy is no different. There is always the chance that your investments just won’t yield a sizable return, making them unsuitable for sustaining your retirement. You might also find that, over time, you just aren’t able to invest as much cash as you would have liked, which also reduces your future payout.
On the other hand, if you feel that you are well-equipped to be able to fund the investments until you reach retirement, then you might fare very well. The key before embarking on this scenario is to ensure that you fully understand your policy, any penalties you might face for early cash withdrawal, and how the investments work for that particular life insurance policy. Speaking with a financial adviser can help answer many other questions.
Other Retirement Alternatives
Finally, if possible, do not let your life insurance policy be your sole source of retirement savings. Instead, use it in conjunction with other retirement plans, such as a 401(k) or an IRA plan.
Remember also that as you grow older and your life changes, so too might your needs for life insurance. Consider this before making any large financial decisions.