Will Your Life Insurance Policy Be a Blessing or a Curse in Retirement?
Will Your Life Insurance Policy Be a Blessing or a Curse in Retirement?
There are several ways to save for retirement. The most obvious path is to start an individual retirement account (IRA) or 401(k) and begin saving money every time you earn a paycheck.
However, there are other effective ways to save for retirement.
Many people invest in the stock market, or other assets, and others use their life insurance policies.
Insurance for Life
That’s right. There are certain types of insurance policies that can pay dividends in retirement. However, you have to be careful, because they could also hurt you. It starts with whole life, or permanent, insurance policy. Term life policies are different in that they only last for a preset amount of time. When the term runs out so does the policy. Permanent life insurance lasts as long as you do, so long as you keep paying the premiums. Additionally, the death benefit is usually paid tax-free.
There is another benefit to permanent life insurance policies. They also include a cash value savings account. These accounts can grow in several ways, depending on the policy you choose: whole life, universal life, or variable life. Each has its own pros and cons. But all can be used to help save you on taxes and give you a nice cash cushion in your golden years. You can do this in the form of a loan.
Using Your Policy for a Loan
There are plenty of reasons to borrow from your permanent life insurance policy and use it as an emergency fund. Let’s say you want to use some of the cash from your policy. You can take as much of the fund that you originally invested tax-free. However, if you take out any earnings from the policy it will likely be subject to taxes. On the other hand, borrowing from your policy in the form of a loan is also tax-free. When doing this, you use the policy as collateral and you get take a tax-free loan from the cash value.
Tax-Free Emergency Fund
This method probably shouldn’t be used as a primary investment strategy, but it is a great way to setup an emergency fund for something unexpected. Additionally, the repayment interest rate is generally low, especially when compared with the 10 percent plus interest rate you will likely find on a three-year personal loan. And using a credit card, which usually comes with a 17 percent interest rate or higher, is even worse. So using your life insurance policy as a way to borrow money can be very beneficial in retirement. Especially when something unexpected occurs.
There are some potential pitfalls to this strategy. Borrowing from our insurance policy can be a problem if you do it too often without paying back the loans. So be cautious not to borrow more than you can afford to pay back. Likewise, if you end up in this situation and you can’t pay your premiums, your policy will lapse and you will be stuck with a tax bill. The safest way to use a permanent life insurance policy is to make it one part of your overall retirement plan, and not the main source.
We hope you found this article about “Will Your Life Insurance Policy Be a Blessing or a Curse in Retirement?” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
To receive our free newsletter, contact us here.
Subscribe to our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
The Economic Benefits of Hosting The Super Bowl
The Economic Benefits of Hosting the Super Bowl Written by Traci Bullock What is the Super Bowl? Arguably, the most popular US sporting event of the year. The Super Bowl features the best two teams from the NFL’s American Football Conference (AFC) and National Football Conference (NFC) competing for the Vince Lombardi Trophy, named…
Positive Work Environment
Positive Work Environment Written by Traci Bullock Creating a positive work environment is essential for the success of any organization or company. A positive work environment not only increases productivity and employee satisfaction, it also attracts and retains top talent. In this article, we will discuss key elements of creating a positive work place: making…
Unlocking Success, One Idea at a Time: An Interview with Lynn Thomas CEO of Thomas Consulting Inc.
See Lynn Thomas’ Recent Interview with Alan Olsen: https://youtu.be/0VFOWFl3wqk Lynn Thomas has been helping clients unlock success, one idea at a time by executing tailored client presentations that deliver extraordinary client experiences. Her firm specializes in creating and implementing plans based on new tax laws and the ever-changing market research. Lynn connects with her clients…
Pushing the Boundaries of Science and Technology: Insight from Dr. Lee Hood
See Dr. Lee Hood’s recent interview with Alan Olsen: https://youtu.be/60DDZ0MJ8QE Dr. Lee M. Hood is best known for his development of technologies which have enabled the advancement of predictive, preventative medicine. Dr Hood’s journey began at a young age, when he was an assistant professor of molecular immunology at California Institute of Technology in 1973.…