The basic concept of life insurance has always been simple: you pay premiums to ensure that if you die prematurely, your loved ones will have the financial resources they need to maintain their quality of life and keep their long-term hopes and dreams on track.
While the concept is simple, the product itself is versatile, capable of addressing financial needs at differing stages in life. For example, certain “permanent” forms of coverage — such as whole, universal and variable life insurance — that may protect you for your entire life have a savings component called “cash value.” It grows on a tax-deferred basis as you pay premiums, much like investments in a 401(k) plan. The policy’s cash value, which is less than the death benefit, can serve as an emergency fund — a ready source of money in the event financial needs arise.
A policy’s cash value can also serve as a retirement savings tool, a way to reduce worries about running out of income later in life. The cash value can provide funds for an annuity, an entirely different form of protection offered by life insurers that some people think of as a personal pension — a guaranteed “paycheck for life” to supplement Social Security. And, if a life insurance policy is fully paid up (meaning, no more premiums are needed to keep it in force) and loved ones or others are not as reliant on you for income as they were before, it may be a good time to consider purchasing an annuity.
Experienced financial professionals can help you navigate through retirement. But they all agree that with modern retirements lasting 20 years, 30 years or more for many people, the need for additional sources of retirement income increases for most people. Permanent forms of life insurance and annuities represent solutions — ways not only to protect your family today, but to grow your retirement nest-egg and lock in a financially secure retirement tomorrow.
Kathleen Coulombe, Vice President, Retirement Security, American Council of Life Insurers (ACLI), [email protected]