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3 Ways to Use Life Insurance for Retirement

Everyone wants financial security for their loved ones long after we’re gone. Unfortunately, employer-provided medical coverage won’t cut it. So, how do we achieve that financial security? As such, we can’t deny the fact that all of us need life insurance. However, we also need to find a balance between life coverage and retirement planning that would allow the policyholder and the family to all be financially secured at the end. There are many ways you can set up your policy and retirement plans together. To help you with your financial strategies, we’ve summarized four ways in which you can win the best of both worlds.

1.Buy Term

It is important to always integrate life insurance in your financial planning, especially if you have children, spouse, or other family members depending on you. For instance, a working spouse would want to have enough funds to cover large financial commitments such as a mortgage, any future obligations like costs for college or retirement, and living expenses should he pass away. On the other hand, the non-working space should be insured in order to cover the cost of childcare and other household needs. So this case should establish that everybody needs a life policy.

The least expensive option you have is term life or pure life insurance. This guarantees you a sum during a specific term and when this expires, you get to choose to renew it for another term, convert it to permanent coverage or simply allow the policy to end. The premium payments depend greatly on one’s age, health, and benefits. This type of policy can be a good investment tool in two ways. One, it provides financial protection for a family, and then second, the low premium payments give you more room for your disposable income to grow in other areas. This may be saving up for college, creating an emergency fund, or investing in other securities.

2.Create an Emergency Fund

As mentioned earlier, freeing up some funds from your term life insurance will give you the chance to build an emergency fund. This could range from three to six month’s worth of expenses or even more. The fund can also turn shoulder your increased expenses so you can avoid getting into debt, which means avoiding paying for interest. Having to pay high credit card rates would make it hard to bounce back from any financial setback. The sooner you recover from a financial emergency, the sooner you get back saving up for your retirement.


3.Protect Your Income With Long-Term Disability Insurance

Regardless if you have children or not, everybody may still need disability insurance. Should sickness strike, you’ll have to make sure that you, your family, and any medical expenses are taken cared of. Surprisingly, people who build their emergency funds also look into getting a long-term disability policy, too. Do note that it is hard to qualify for disability benefits from Social Security in cases of severe illness or injury, which stops them from working. In most cases, the benefits are likely to fall below what you actually need. So it is best to avail of a long-term disability policy instead, which will replace your lost income.

Please make sure to look for a guaranteed renewable and non-cancellable policy that will ensure your premium payments won’t increase, and re-qualifying won’t become an issue. This will also keep your insurance policy active as long as you keep your premiums paid. Remember, your most powerful wealth-building tool is your income. If you don’t have this, you have no means to save for retirement.

Based on materials from Investopedia

Photo Credits:
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