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Reviewed by:The most common reason for buying life insurance is to provide for dependents when you pass away, but you might be surprised to find out that life insurance can also be used for retirement planning. In fact, there are several ways you can use your life insurance policy to help with retirement finances. In this post, we’ll share five strategies to help you use your policy to its full potential.
Can all life insurance policies be used for retirement planning?
Most retirement planning strategies that involve life insurance policies are referring to permanent life insurance, as these policies accumulate “cash value” that can be tapped into. When you pay premiums for a permanent life insurance policy, part of your payment goes toward covering the cost of insurance while the other portion goes to building cash value. The cash value component acts like a savings account, as it earns tax-deferred interest and may allow you to invest the funds to increase your return. When you retire, you can access your cash value to provide an income stream or cover large expenses.
Term life insurance policies do not build cash value, so they’re generally not used for retirement planning. However, you may be able to convert your term life insurance policy into a permanent policy to use for this purpose.
5 ways to use life insurance for retirement
Whether you’ve just started working, are about to retire, or have been retired for years already — here are your options for using your life insurance policy to help with retirement planning.
1. Withdraw from cash value
2. Take a loan
3. Let your policy pay for itself
4. Surrender your policy
5. Sell your policy
You can also sell your life insurance policy through a transaction known as a life settlement or viatical settlement. When you sell a life insurance policy, a third-party buyer will give you a one time cash payment and will become the new owner of the policy — meaning they’re responsible for paying premiums and will collect the death benefit when you die.
The money you get from selling your life insurance policy will be higher than the cash surrender value, but less than the death benefit. In fact, the Life Insurance Settlement Association (LISA) found that in 2023, policyholders received over $842 million from selling their unwanted life insurance policies. On average, selling a life insurance policy paid more than six times the cash surrender value, putting an extra $707 million in people’s pockets to help with retirement planning.
If you’re interested in selling your life insurance policy to use the money for retirement, you can use our life settlement calculator to get an instant estimate of how much your policy is worth. Alternatively, you can contact us to get in touch with our life settlement experts so they can answer your questions about the process and your policy’s value.
