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How To Protect Your Retirement Savings With Whole Life Insurance

Understanding The Basics

Whole life insurance isn’t the first financial product you think of when saving money for your future or protecting your retirement savings.


whole life insurance

However, the simplicity of its design is what makes it versatile enough to pull this off. The policy consists of a death benefit with a cash value savings. The cash value acts as a cash reserve against the death benefit. As the cash value grows over time, it replaces an equivalent amount of death benefit of the policy. Read also: Simple Keys to Understanding Life Insurance Policies.


For example, if you purchased $100,000 of whole life, you will probably have $0 in cash value in the first year and $100,000 of net death benefit. When the cash value grows to $50,000, you’ll only have $50,000 of net death benefit but your total death benefit will still be $100,000. At age 100, the cash value and the total death benefit equal each other signifying that the policy is fully matured. The insurer will then hand you a check for the full accumulated death benefit amount.


During your lifetime, however, you may tap into this cash value through low-cost or zero percent net interest rate policy loans. This sustainable access to cash value is part of how you can protect your retirement savings. Read also: Is No Physical Life Insurance the Same As Physical Life Insurance?


How To Save Your Pension

If you’re lucky enough to have a company pension, you know you have three basic options. You can take the full pension payment, a reduced payment with a spousal beneficiary payment after you die, or a lump sum amount with no further payments beyond that.


Many pensioners choose the reduced pension payment at the urging of their employer since this leaves money aside for the pensioner’s spouse if the pensioner dies prematurely. With a whole life policy, the pensioner can elect to receive either lifetime payments or a full lump sum payment and purchase a whole life policy with part of the pension amount.


If you were to use a high cash value whole life plan that pays dividends and is issued by a mutual life insurer, then you will start building cash value in the first year along with a death benefit that grows over time. This does two things.


First, the death benefit can be structured to provide your spouse with an amount of money equal to what she would have received under a reduced pension payment with spousal beneficiary payments from your company. Secondly, if your spouse predeceases you, you receive your full pension savings back through the cash value.


Since many reduced pension payment options do not offer you a way to recover the amount you set aside for your spouse, this financial strategy ensures you and your spouse benefit regardless of what happens. Read also: Protect Loved Ones with Family Insurance.


How To Insure Your Retirement Savings

One popular retirement planning strategy using whole life insurance, called “supplemental life insurance retirement planning” (SLIRP), guarantees your retirement savings against loss. By using this strategy, you divert some or all of the money you were paying to a 401(k) plan (or some other retirement plan) into a 10 or 20-pay, dividend-paying, whole life plan.


These policies rapidly build cash value and often mimic a bond fund’s performance. When you retire, you simply live off of the policy’s loan proceeds which are tax-free and will be deducted from your total death benefit when you die. These loan proceeds will supplement your other retirement income sources.


Making A Good Plan

A good whole life insurance plan requires a good budget. Before you buy any policy, make a budget to ensure you have the funds you need to pay premiums over a long period of time. While many policies have an auto-lapse protection feature built in, you should make sure you can comfortably afford your premiums for at least 10 years. Read also: Quality Life Insurance Coverage For Parents.


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