Plan For Tomorrow | How can a life insurance policy help with retirement planning?
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How can a life insurance policy help with retirement planning?

Monday 10 July 2023 | Reading Time: 3 minutes

When developing your retirement income strategy, you likely come across many options for growing your savings and creating income in the future. One option for you to consider is life insurance. Not only can life insurance help protect your family’s financial well-being, but a permanent life insurance policy can also provide an opportunity to grow cash value and create an income stream in retirement.

The role of life insurance in retirement planning

In addition to providing your beneficiaries with a death benefit, life insurance can also be valuable to your overall retirement income plan. You may be looking to boost your savings for the future or close income gaps between your retirement accounts and estimated expenses. Perhaps you’ve reached the contribution limits on your individual retirement plan. With the guidance of a financial professional, you can determine if life insurance is a good option for helping supplement your retirement income down the road.

Using life insurance to supplement retirement income

Life insurance policies provide loved ones with a death benefit after you pass on. Many of these policies have the potential to build cash value which can accumulate over time and may be a valuable income source in the future. You can access cash value through policy loans1 or withdrawals1, and the money could be used for a generally tax-free income stream.2 Life insurance provides needed death benefit protection and the opportunity for tax-deferred cash value growth potential. Including life insurance as part of your overall retirement planning can offer the following:

Flexibility

Cash value can provide a source of income once you retire, and with some policies, could help with a life event, such as an illness, or unexpected expense. Generally, most policies do not have an age requirement for a policy loan. If you take a policy loan, you typically do not need to repay this loan, but it will accrue interest. If left unpaid at the time of your death, any loan amount will be deducted from the death benefit, meaning your beneficiary will receive less funds.

Lower taxes in retirement

If you use the cash value from your life insurance policy to help supplement your retirement income, you might be able to reduce the amount you withdraw from other retirement sources. When it comes to tax rates, we don’t know what the future holds in store. Taking less income from other retirement sources could help keep you in a lower tax bracket.2

Along with financially protecting your family, life insurance can be an essential addition to your retirement plan to help supplement your income needs once you retire. Watch this video to learn more about life insurance's role in retirement planning.


1. Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent cash value of the contract exceeds the premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy, and taxable distributions are subject to a 10% additional tax before age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefits. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation.

2. Neither North American Company for Life and Health Insurance nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums for such arrangements. The tax-deferred feature of the universal life policy is not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing a policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.

Life insurance policies have terms under which the policy may be continued in force or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. Current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write North American Company for Life and Health Insurance at One Sammons Plaza, Sioux Falls, SD 57193. Telephone 877-872-0757.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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