As life insurance has evolved over the years, more people have begun using it in retirement planning. Of course, we're referring to forms of permanent life insurance here, not term policies. Term life insurance provides no savings vehicle for the insured, meaning it really has no investment opportunities. With permanent life insurance, there is an abundance of investment options, allowing you to plan for retirement while protecting your family's future should anything happen to you. Although the initial premiums on a permanent insurance policy, such as whole life insurance, are usually higher than those of term life insurance, they can even out over time since you can lock in a permanent policy's rate for the rest of your life. While using permanent life insurance as an investment certainly has its advantages, it may not be the best option for everyone. Before you sink your money into a life insurance policy for retirement, consider these questions first.
First, consider the costs of a permanent life insurance policy. The premiums alone may not be overwhelming, but the additional money used for investments can make these policies expensive. You may be able to get lower rates by decreasing the amount of your death benefit though.
Much of the appeal of using life insurance as a retirement investment is that the money you put into your policy grows tax deferred. That can end up saving you thousands of dollars in taxes, but it all depends on your tax bracket. Research your state and federal tax brackets - the higher your bracket, the more money you can potentially save from investing in life insurance.
Do you have any health issues such as high cholesterol or a family history of heart disease? Generally, the more health problem you have, the more expensive your life insurance premiums will be, but you should still be able to get a policy. Get a few life insurance quotes and find out how high your premiums would be. If they're too high for your budget, you may want to think about other types of investments.
Obviously, you shouldn't use life insurance as an investment if you don't have a need for insurance or don't want a permanent policy. If you don't think permanent life insurance is for you, you should still consider a term policy as their reasonable premiums still allow you invest money elsewhere.
Finally, keep in mind that you must be very careful borrowing money against your life insurance policy during retirement. Borrowing from your life insurance is definitely an advantage you should make use of, just make sure you do not allow your policy to collapse and risk losing the death benefit.