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Since life insurance is primarily known for its death benefit protection, people often overlook the important role the cash value feature can play in preparing for retirement. This article takes a close look at cash value life insurance and explores some of the reasons why you should consider adding it to your retirement portfolio.
If you’re starting to think about retirement, there’s a good chance that you have considered IRAs, 401(k)s, annuities, and all the other well-known retirement savings vehicles. But have you ever thought about making life insurance part of your retirement portfolio?
While life insurance is primarily known for its death benefit protection, a cash value life insurance policy can also serve as a tax-efficient retirement tool. In fact, the cash value of a life insurance policy can be so helpful that some companies refer to these products as life insurance retirement plans (LIRPs).
While New York Life does not use the term LIRP, we do recognize the important role cash value life insurance can play as you prepare for retirement. That’s because the cash value of a life insurance policy grows tax-deferred within your policy and is a resource you can use to supplement your retirement income. Of course, when you access the cash value in a life insurance policy for supplemental retirement income, you will reduce the death benefit and the available cash surrender value. Since income taxes are only paid on withdrawals that exceed your basis, it’s important to consult your financial professional or tax expert and make sure the policy is structured the right way.
Since whole life insurance builds cash value, it can be an excellent choice for anyone interested in pursuing this strategy. In particular, you may want to consider a Custom Whole Life policy since it gives you the ability to generate cash value even faster than a traditional whole life policy might.
While many retirees periodically withdraw a portion of their cash value to help supplement their retirement income, another strategy you may want to consider is to use the cash value that builds up in your policy to purchase an income annuity. Since an annuity returns the principal you invest with the annuity issuer, it can create a steady, dependable flow of income that you can count on in your retirement years. Either way, it’s important to make sure that your need for life insurance protection has changed, and that withdrawals can be a taxable if they are not done properly. Be sure to consult a financial professional or tax-expert before employing either strategy
You may also be interested to know that the cash value of a life insurance policy can be an effective way to protect your retirement assets during a downturn in the market. How is that? Cash value can be accessed* for any financial purpose. Assuming that you have made a long-term commitment to the policy and built-up considerable cash value, you may be able to use this resource instead of selling other retirement assets while prices are depressed.
While each person’s needs are different, it’s important to remember that this strategy is designed to provide supplemental retirement income and should therefore be considered a complementary piece of your retirement portfolio. Here again, a New York Life financial professional can provide some valuable insight and help determine your policy needs.
The best way to get started is to make sure you have all the information needed to make an educated decision. We recommend that you speak with a New York Life financial professional who can review all your options, answer all your questions, and make sure you know exactly which type of coverage makes the most sense for you.
While life insurance is generally not considered an investment, a variable universal life policy does give you the opportunity to invest your cash value in a set of professionally managed investment options composed of underlying stocks or bonds, that are included in your policy. Of course, a variable universal life policy involves both upside and downside potential. If you would like to explore this type of coverage, be sure to speak with a financial professional who is licensed to sell securities.
* Accessing the cash value of a permanent life insurance policy will reduce the available cash surrender value and the death benefit.
1 As long as all premiums are paid on a timely basis.
2 Variable universal life insurance is offered only by prospectus. Please ask your registered representative for a prospectus containing more complete information about the policy, including investment objectives, strategies, risks, and charges. Please read the prospectus carefully before investing. NYLIFE Distributors LLC, Distributor.