How Life Insurance Can Improve Retirement in NJsiadmin August 27, 2018
Most people think that life insurance only provides benefits to loved ones if they die. While life insurance will provide financial stability to your relatives, there are other ways to use this insurance. In fact, life insurance can be used as an additional source of income, which comes in handy when you retire in New Jersey.
Let’s learn more about how life insurance works as supplemental insurance and how it can improve the golden years.
Permanent Life Insurance: Whole Life vs Universal Life
Term life insurance stays in effect for a certain number of years, usually between 5 and 30 years. Whole life insurance is a type of permanent life insurance that goes on forever, unless you cancel it. A whole life policy is typically more expensive, but your policy will build cash value. Later on, you can borrow from this money. Some policies even allow you to earn interest on a tax-deferred basis.
Another type of whole life insurance is universal insurance. Universal life can be attractive to people who are retiring because it builds cash value and has an investment component. A portion of your premium goes toward the policy, while the rest is invested. Your returns are based on how well the investments do. While these policies can be lucrative, there is no guarantee that the investments will do well.
Only Borrow When Necessary
As tempting as it can be to borrow from your life insurance policy, be careful about these decisions. To build up a nice stream of income that can be used for your NJ retirement, you can’t be taking out money.
Fortunately, you can typically withdraw without any penalties. Both whole life and universal life allow you to borrow up to the cash value you’ve accrued over the years. Because you’re not borrowing against money that’s not there, it’s not a loan that needs to be repaid. When you’re retired and you need to repair the home, purchase a new vehicle or pay bills, it’s reassuring to know that you have the cash to do so.
Converting Life Insurance into an Annuity
Once you’ve built up a strong cash value in your policy, you can convert it into an annuity. An annuity is a contract that you purchase from your insurance company, funded with a lump sum of money. The insurance company will pay you a fixed amount for the rest of your life. Better yet, a 1035 exchange lets you switch your annuity to a tax-free account. You do lose your death benefit, but the savings in taxes are usually worth it. Shop around for an annuity so you can get the best payout.
Looking for life insurance that can be used for your golden years? Contact Soden Insurance to learn more.