Life insurance can do a lot more than provide your family with financial support after you pass away. Did you know that the right permanent life insurance policy can help support you during retirement?
When a policy provides benefits you can access during your life, they're called "living benefits." Right now, living benefits are a growing trend in the industry. When money's tight, people want a product that does double duty. That's what so many of the new permanent policies are all about.
3 Living Benefits of Permanent Life Insurance
- Tax-free growth of your policy's cash value. When you buy permanent life insurance, your premium payments are split up to cover different things. A part of your payment goes toward traditional policy expenses, such as funding the death benefit and administrative fees. Another part goes into your policy's cash value, which grows tax-free. Depending on the type of policy you have, your cash value can accumulate based on a set percentage of interest, or it can be tied to market gains. This money is not taxed as long as it's accumulating in your account.
- Tax-free income for your retirement. When you're ready to retire, you can start pulling money out of your cash value. If, for example, you rely on Social Security but realize it's not enough to pay for all your expenses, you can use policy withdrawals and/or policy loans to access your cash value. You're entitled to pull out the same amount you put into the policy without paying any income tax (provided you paid for the policy with after-tax dollars). If you need even more money, a policy loan will usually allow you to pull out more than you put in, dipping into the interest earned on your cash value. The trade-off? This may reduce the death benefit your beneficiaries get after you pass away.
- No IRS penalties for early distribution. Your life insurance policy isn't subject to the same rules as a 401(k). Whereas you pay a penalty if you pull money from other retirement accounts before age 59-and-a-half, your life insurance is a different thing entirely. You can take a cash distribution from your policy before age 59-and-a-half without any penalty from the IRS. Plus, there are no required minimum distributions at any age. If you don't want to take a distribution, you don't have to.
These are three good reasons you should consider adding life insurance to your financial portfolio. With the right policy, you get benefits for you and benefits for your family after you're gone.
To learn more about life insurance benefits during retirement, check out the video below.
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Note: Policy loans and partial withdrawals may vary by state, reduce available surrender value and death benefit or cause the policy to lapse. In most cases, policy loans or partial withdrawals won't be taxable as long as you limit your withdrawal to the amount of premiums you've already paid. Consult all policy documentation or your agent for details.