The roles life insurance can play in retirement

The roles life insurance can play in retirement

As people age, many believe they have less of a need for the death benefit of life insurance. However, there are very important ways life insurance can make your retirement more comfortable and secure. Here are a few benefits to owning life insurance in retirement:

Ensure money for your family with a death benefit

One of the best things about adding life insurance to a retirement plan is the freedom it can provide.

With a permanent life insurance policy as part of a retirement plan, life insurance can help maintain your spouse’s lifestyle at your death as well as provide the legacy you hope to leave to the next generation.

In addition, the money from the death benefit may be available to pay for end of life medical costs, taxes on retirement assets, or simply as an additional benefit to be distributed as you choose.

If properly structured, life insurance death benefits pass income tax-free to your beneficiaries and can be removed from the taxable estate. Since death benefit proceeds can provide the funds needed to pay estate and income taxes as well as financial expenses, life insurance is often the most cost-effective means for protecting your estate.

Additional help in the event of a chronic or terminal illness

Some policies have the ability to add a rider that can accelerate the payment of the death benefit if the insured needs care for a chronic or terminal illness. This benefit can provide you with additional financial resources at a time when you may need them the most. Best of all, the payment of the benefit is not tied to a particular course of treatment, but can be used as you need to use it, for whichever purpose suits you best.

Acceleration of the death benefit during the insured's lifetime will reduce the future benefit payable upon their death. As with any significant financial decision you should consult with your financial advisor so that you can make the best decision for you and your family.

Reserve cash value for the unexpected

The cash value in permanent life insurance can also give you financial security when unexpected, or higher than expected, expenses arise during retirement. That might include needing a temporary boost to your retirement income, covering a large purchase or repair cost, or helping to cover the costs of health or long term care.

Depending on your circumstances, it might make sense to either withdraw some of the cash value from the policy (known as a "partial surrender"), or take a loan against the policy. Unlike loans from a bank, there is no credit check or income verification required to access the available cash value of your life insurance policy. This ensures that you have access to the money when you need it most. Your financial professional can help you understand the differences between partial surrenders and loans, and decide what is best for your needs.

Have a non-traditional solution to tax uncertainties

Permanent life insurance, when purchased in conjunction with other retirement investments, may provide an ideal way to help tax-diversify your retirement savings. How?

  • Withdrawals and loans from your policy values are generally income tax-free to you under the Internal Revenue Code.*
  • Because withdrawals and loans can be taken on an income tax-free basis, they do not typically subject your Social Security income to taxation, unlike income from other sources.
  • There is no 10% penalty tax on cash values distributed prior to age 59½ (as long as the policy is not classified as a modified endowment contract).
  • You decide when, or if, to take distributions because there are no required minimum distribution rules.

Buffer market volatility with permanent life insurance

Qualified retirement savings accounts, such as 401(k) and IRAs can be helpful tools for building up assets for retirement. But, when it comes time to get money for retirement, it involves selling off shares of the investments.

When the market is doing well, that's no problem. But if the market is down, you may be selling more shares of your investments than you want in order to get the same income you need. That also means you may be depleting your account too quickly, and jeopardizing your future retirement income security.

Most permanent life insurance policies have the ability to build up cash value. While there are different types of permanent life insurance, many have protections in place that shield the cash value from market volatility. That means you can potentially use this asset for retirement expenses during investment downturns and allow your investment accounts to rebound in value.

Next steps

Talk to your Ohio National financial professional today about using life insurance to supplement a retirement plan.

The purchase of permanent life insurance is a long-term commitment and is subject to underwriting approval. During the first several years, both the guaranteed and non-guaranteed cash value of a permanent life insurance policy is typically less than the premiums paid. Before purchasing a life insurance policy, you should request a policy illustration and carefully compare both the guaranteed and non-guaranteed elements.

*Life insurance cash values grow without being subject to current taxation. Cash values can be accessed by way of policy loans without being subject to taxation.

D-465477 3-20

 

The optional Accelerated Benefit Rider provides for a partial acceleration of the policy death benefit in the event that the base policy insured is certified by a licensed physician as being chronically ill or terminally ill. By taking an accelerated death benefit payment, a lien is created against the policy death benefit. The lien accrues carrying charges at an adjustable rate we declare. The lien, including the lien carrying charges, will be deducted from the total death benefit otherwise payable to the policy beneficiary(ies) and will reduce the cash value available for policy loans, surrenders, or the exercise of any non-forfeiture option.

The required premium for the policy must still be paid even if an accelerated death benefit is taken. If an accelerated benefit is taken and the policy lapses or otherwise terminates, a taxable event may occur. Any death benefit provided by an optional Accidental Death Benefit Rider is not available for acceleration under this rider.

Any accelerated benefit you elect to take under this rider may be taxable. Consult your tax advisor on all tax matters. Adding the rider to a life insurance policy or the taking of rider benefits may affect eligibility for certain public assistance programs and government benefits.

The Accelerated Benefit Rider is not designed to be a substitute for long-term care insurance, health insurance, or nursing home insurance. Rider benefits and features may vary by state.

Life insurance is issued by The Ohio National Life Insurance Company and Ohio National Life Assurance Corporation. Guarantees are based on the claims-paying ability of the issuer. Loans and withdrawals may reduce the death benefit, cash surrender value and any living benefit amount.

Products, product features, and rider availability vary by state. Issuer not licensed to conduct business in NY.

If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the loan or withdrawal is taken and, if taken prior to age 59½, a 10 percent federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value. 

This provides general information that should not be construed as specific legal or tax advice nor the law of any particular state.  Please seek the advice of a qualified legal or tax professional for your specific situation.

Need some guidance?

Our knowledgeable representatives are ready to help.

CONTACT US
LOGIN