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How Insurance Can Be Used for Retirement Planning

BECU Investment Services

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When people think of life insurance, the first thing that may come to mind is ensuring your loved ones are covered financially should something happen to you. It is a concern that more than half of all Americans consider — according to the Life Insurance Marketing and Research Association, at least 52% of them covered by life insurance in 2023. However, some insurance policies can help you with more than just a lump sum payout in the event of a tragedy.

With the proper structure, life insurance policies can become financial assets like an IRA or mutual fund. These types of insurance build cash value over time that you can use during your life. Depending on what kind of insurance you buy, you may be able to borrow against your policy, or withdraw from it without being subject to a penalty or tax liability.

Key Takeaways

  • Life insurance has the option of being a financial asset for use in your lifetime.
  • A cheaper term life insurance policy may leave money on the table for investing opportunities.
  • Two types of permanent life insurance can be used as an asset.
  • You can withdraw from or borrow against your cash-value account depending on your policy.

Managing Your Insurance Coverage and Exploring Investing Opportunities

Term Life Insurance

Generally, term life insurance is less expensive than permanent life insurance, although it is hard to say how much cheaper since so many variables are included in the calculation, including age, health, family history, and gender.

Term life insurance offers a flexible coverage period, tailored to your specific needs. Should something happen to you during the active policy period, the insurance company will provide a specific amount to your beneficiaries. It's important to note there is no residual value if such an event does not occur.

By choosing term life insurance, which can be significantly more affordable than other options, you can potentially unlock extra funds for investment. These savings can be invested in low-risk securities such as a traditional or Roth Individual Retirement Account (IRA), an exchange-traded fund (ETF) or mutual fund, a certificate of deposit (CD), or a high-yield savings account. This strategy allows you to align your investment preferences and goals with your life insurance plan.

Managing Your Insurance Policy as a Financial Asset

Permanent Life Insurance

Permanent life insurance allows you to invest in conservative investments, including ETFs and mutual funds, to help build a cash value accumulation that you can tap into if you need to during your lifetime. There are two types of permanent life insurance:

  • Universal
    • Lower premiums.
    • More flexible premium offers.
    • Potential cash value growth.
    • Option to increase or decrease the death benefit.
    • Fewer guarantees compared to the more expensive whole life insurance.
  • Whole
    • Higher premiums.
    • Fixed premiums.
    • Guaranteed death benefit.
    • Guaranteed cash value growth.
    • Helpful in complementing your existing retirement savings.

Other Retirement Planning Options Using Insurance

Long-Term Care Insurance

Long-term care (LTC) insurance can be used for retirement planning to help manage the financial impact should you or your spouse require specific care without the burden falling back on your loved ones. According to, 65-year-olds today have a nearly 70% chance of needing long-term care services and support, and nursing home care costs have soared to over $108,000 annually for a private room. The average age of residents of assisted living facilities is 84.

Long-term care insurance doesn't just impact the individuals who need it; it also affects families on a personal and often financial level. These needs can pose significant challenges for families, and remarkably, the New York Times reported that only about 3- 4% of Americans 50 and older pay for a long-term care policy.

Cash-Value Life Insurance

This insurance option is typically available with both universal and whole-life policies, which generally cost more than a term policy (as mentioned above) because of the components included. Cash-value life insurance allows you to incorporate a savings or investment approach that you can utilize in certain situations while you are still living and without being subject to a tax liability.

The cash-value component grows tax-deferred, and if you can max out your retirement plans, this is an opportunity to invest the excess money in a tax-deferred account. Investors, at times, experience a financial hiccup in life, and having this type of account may allow them to borrow against the cash-value component, and for some individuals, money can be withdrawn without penalty (as would typically occur if withdrawing from a 401(k) or an IRA, until you are eligible).

Accelerated Benefits Option

In the unexpected event of a serious medical emergency, such as a heart attack or life-threatening cancer diagnosis, you may be eligible to receive your benefits during your lifetime. Depending on your policy, you may be entitled to withdraw between 25% and 100% of the value.

Discuss Your Retirement Plans With Your Family

Being transparent with your family about financial issues and retirement plans for you and your spouse helps to build trust with your loved ones. It also empowers them should it become necessary to make financial decisions on your behalf.

Creating an open and safe communication environment allows everyone to participate and share their thoughts and feelings, especially when dealing with such an important topic as you and your family's financial strategies, goals, and potential concerns. It may even be beneficial to sit down as a family with your financial advisor who can provide an informed outside perspective.

Talk to a Financial Advisor

Life insurance, annuities, and other long-term insurance strategies can be very complex and impact you and your financial goals in the future, even well into your retirement years. Financial advisors at BECU Investment Services can help provide guidance with insurance policies to help you and your family prepare for retirement. Our team will take the time to get to know you, understand your goals and wishes to help build a plan and implement a financial and retirement strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720 today.

For more resources or to stay up to date on market updates follow BECU Investment Services on social media: LinkedIn; Facebook

Long-Term Care Statistics To Know in 2024 -
Why Long-Term Care Insurance Falls Short for So Many - The New York Times (
Long-Term Care Insurance Explained - NerdWallet
LIMRA (Life Insurance Marketing and Research Association) – LIAM Facts Sheet 2023

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