4 Important Steps Life Insurance For Retirement

Strategies To Use Life Insurance For Retirement
Can the right life insurance policy help you meet your retirement savings goals? Yes, but maybe not in the way you’re thinking. While life insurance agents will try to sell you on the benefits of permanent life insurance that accumulates cash value, such policies usually only make sense for individuals with a net worth of at least $5 million, the threshold where estate taxes kick in after death.

Step 1: Buy Term

If you have a spouse or children who depend on your income or who depend on your “free” services as a stay-at-home parent or homemaker, life insurance should be part of your financial plan. In other words, almost everyone needs life insurance. Even if you miss out on retirement because of an early death, you’d still like your spouse to be financially secure enough to have a chance at enjoying retirement, right? The least expensive type of life insurance, not just considering your out-of-pocket expense but also considering how much coverage you get for what you pay, is term life insurance.

Life insurance prices vary significantly depending on your age, health and policy features, but here’s one example that shows how much extra cash you could have to work with if you buy term instead of permanent life insurance. A nonsmoking, 35-year-old New York man in good health, meaning his blood pressure and cholesterol might be a bit higher than the ideal, might be able to get a 20-year term policy with a $1 million death benefit for $1,030 per year.  If the same man bought a whole life policy, a type of permanent life insurance, the premium might be $14,090 annually for the same death benefit. That’s a $13,060 difference per year.

Step 2: Create an Emergency Fund

The first way you should put the savings from buying term life insurance to work is by building yourself an emergency fund of three to six months’ worth of expenses – maybe more, if you’re really risk averse or have an irregular income. Having an emergency fund prevents you from going into debt to handle times of increased expenses or reduced income.

Avoiding debt means avoiding paying interest; having to pay interest, especially at credit card rates, makes it that much harder to recover from a setback. A financial emergency often means temporarily stopping your retirement contributions; the sooner you can bounce back, the sooner you can get back on track with your retirement savings.

Step 3: Protect Your Income with Long-Term Disability Insurance

Ideally, you’d take this step at the same time as you’re building your emergency fund; there’s no reason to wait. While many people think they can get disability benefits from Social Security if a serious illness or injury prevents them from working, it is hard to qualify for these benefits and they might be far below what you’d need to maintain your household’s standard of living. What’s more, you won’t qualify for those benefits if you haven’t paid into the system; many public employees have not.

Step 4: Invest the Rest

You’ve got life insurance, an emergency fund and disability insurance. Finally, let’s talk about investing the rest of the money you’ve saved by using term life insurance as a retirement tool.

While permanent life insurance policies have a cash value component that accumulates savings and can be invested, you’ll have the greatest control over your money and the potential to earn the highest returns if you invest it yourself, through the brokerage of your choosing, rather than through a life insurance policy. You won’t pay the high policy fees and agent commissions associated with permanent life insurance, your investment performance won’t be tied to the life insurance company’s financial performance, and you won’t be limited to the investments the insurance company offers.


source:
http://www.investopedia.com/articles/personal-finance/112614/strategies-use-life-insurance-retirement.asp