What Does A Life Insurance Retirement Plan Cover?
3 min read
Life insurance is a way to protect your beneficiaries from financial hardship in the event you pass away. In comparison, a retirement plan is for ease of mind while you are alive.
When it comes time to retire, many people end up feeling challenged as they no longer have a source of income. To avoid this, it is important to save up funds or make smart investments.
Let’s explore how you can use life insurance as part of your retirement plan.
Permanent Life Insurance
Many life insurers suggest that you buy permanent life insurance with a cash value component.
The cash value makes a permanent life insurance policy a means for investments and savings for retirement and emergency funds.
You can borrow money against this cash value or use it to pay off your debts and loans. You can even set it up as your retirement fund. However, you will eventually have to repay this money that you borrow against your policy.
Another thing to note is that permanent life insurance policies are often more expensive than term life insurance due to the cash value investment component they offer.
Term Life Insurance
A term life insurance provides coverage for a fixed term, say 10, 20 or 30 years. It is often much simpler and cheaper than permanent life insurance.
This is the reason why financial advisors suggest that term life insurance is a better idea for most people
Another reason is the difference between the premiums of both policies.
For instance, a 30 year old, healthy, non-smoker buys term life insurance. Their death benefit is around $ 1 million, and their premium is around $1050 per year.
On the other hand, if this person buys permanent life insurance, their premium will be around $13,000 per year for the same death benefit amount.
So, this is where the difference comes in. This person can save a lot of money on the premiums if they buy term life insurance. They can use the difference to set up a retirement fund, an emergency fund, or can use this money in investments too.
Term life insurance does not include a cash value component. It does offer a death benefit for your beneficiaries in the event you pass away, but it also helps you to save more money compared to other types of life insurance.
Employee Retirement Plans and Social Security
Many people receive retirement benefits, pension funds, or retirement coverage from their employer company. Even the government provides social security retirement benefits. The downside is that these programs can be difficult to obtain and are quite modest in payment. So, people most need another retirement plan to cover their expenses when their running income stops.
In such cases, people saving for retirement plans with 401 (k) plans, permanent life insurance, or similar investment vehicles can be a good option.
There are many life insurance retirement plans that should be taken into consideration. It is best advised that you talk to an insurance advisor to help you work out the most suitable one for you.
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