Planning for life is a very basic step, but the hard part is planning for specific stages of life. When you’re younger, your primary goal is education and career development.
Later on in life, it’s about settling down and planning for a family.
Similarly, retirement is one such phase that also requires prior planning, especially since it means the lack of a stable and steady source of income.
Many of us opt for life insurance for one basic reason: in case we’re not around anymore, our immediate family members will still be taken care of. However, life insurance can be an instrument for a lot more than that.
The main role of life insurance is to act as an insurance product that can also be a tool for income replacement. Most people start investing in one when they’re working professionals and have a steady source of revenue.
So, let’s address the difference between term life insurance and permanent life insurance.
Permanent life insurance is an investment tool and offers additional cash value apart from the basic coverage of the policy. These products last a lifetime, even after you’ve stopped working, which is why they serve as important assets that can make post-retirement life a lot easier.
Let’s have a look at 4 effective ways to make the most of life insurance for your retirement:
1. Income For Retirement
There are a few ways in which a life insurance scheme could become a steady source of retirement income. One option would be to convert an existing policy into an annuity, which makes sense if you’re looking for regular income and not for a death benefit scheme.
Another viable option is to sell the policy in the market and get a lump sum amount at once.
The longer your policy has matured for, the greater the liquidated amount can be. After all, it’s your accumulated premium money plus the policy benefit that you’re withdrawing.
And with recent changes in the law, the tax on the gain from a secondary sale of life insurance policies has been reduced, which is an added benefit!
2. Cash Value Asset
When a life insurance policy is a non-modified endowment contract (non-MEC), the cash value of the policy can be easily withdrawn.
The best part? The withdrawal is free of income tax burdens, and it doesn’t increase your text liability either. Instead of liquidating or putting your hand into other tangible assets, which can be a loss if it’s downtime in the financial market, cashing-in a policy is a much safer and smarter option.
This way you can continue to meet your expenditure needs and also allow your other investments more time to mature. The hasty liquidation of hard assets can be a bad move because you might just make a loss instead of a profit.
The policies market is more stable that way, and there’s little no chance of there being a loss of value. You can check our the best life insurance rates by age from Simply Insurance to get a better idea.
3. Covering For Loss Of Pension
Pension payments and social security benefits end when one spouse dies, which then becomes a loss of income for the surviving spouse. With a ‘pension maximization strategy’ you can offset this lost income with an insurance policy.
Even if both spouses are working, there are a number of benefits that stop when one of them discontinues their career. That, and any unexpected health conditions could mean the stoppage of such benefits.
By opting for a policy when you’re younger, you’ll be paying lower premiums and also giving your policy enough time to amount to a larger sum. So, even when the benefits of pension or social security payments are taken away, your family will still have a solid asset to fall back on and use for income purposes.
4. Planning Long Term
What you need to do essentially is invest in long-term disability insurance to protect your livelihood and income. Disability is nothing but the inability to continue working due to a particular situation or physical condition.
Most government schemes offer compensation for such cases, which are known as disability benefits. Disability benefits are way below par from social security and other public reforms, especially if it’s a public job or if you haven’t paid into the official system.
If you’re unable to continue with your profession, or you have to shut shop because of some medical reasons, disability insurance makes up for that loss of potential income to a significant extent. Even if you don’t have any family to support, you can use it to handle your medical expenses and so on.
For many people, insurance isn’t so much of an investment as it is a shield to protect those that they will eventually leave behind. Not many understand that insurance can be a safe cover even for times when a smooth flow of funds has been interrupted.
While there are separate plans that focus on retirement funding, life insurance is a comprehensive option and also has resalable value in the financial market. Hence, when it comes to planning long-term and for your post-retirement life, remember that life insurance is a viable option!