Is Life Insurance Perfect For Retirement?
Are you confused about the purpose of life insurance? You’re not alone. Many individuals are under the incorrect assumption that life insurance is only used for the death benefit. You die you use it, you live, you don’t. Here’s your ahha moment; life insurance can also be used for retirement. Are you dying to know how? Read on.
To keep more of your own money in your pocket you want to avoid taxes as much as possible once you reach retirement. Withdrawals from cash value life insurance policies are not taxed as long as that cash value is equal to or less than the premiums you paid for the policy. The amount of cash value that exceeds the purchase amount is the only part taxed as ordinary income. Whereas withdrawals from a 401k plan or IRA are completely subject to ordinary income taxes, unless it is a Roth 401k or Roth IRA.
It’s Your Money
In retirement you will need more money than you may realize. Cash value life insurance policies can provide that for you. To avoid paying taxes on the growth of your life policy you can take out a tax-free loan against the cash value. You are not required to pay back that loan; the loan balance will be deducted from any remaining death benefit at the time of your death. In other words the only financial consequence for using your own money during your retirement will be a reduced death benefit for your beneficiaries.
The Other Side Of Perfect Retirement
The only reason life insurance may not be the perfect investment for retirement is the cost of it. Before investing you should compare the fees of a life insurance policy with those of an employer sponsored retirement plan (401k) and an IRA. All three types of investments have fees. You will need to determine how much you are willing to pay for the advantages offered.