How Life Insurance Can Support Your Retirement Strategy

When people think about life insurance, they just assume that it’s a tool that financially protects your beneficiaries in case of your untimely passing. However, different types of insurance policies can add value to you as a policyholder during your life. This is where the importance of retirement planning comes in.

When planning your retirement, you need to consider the different expenses you may and will accrue, like utilities, hospital bills, and your daily allowance. Some Filipinos even consider estate taxes in their retirement planning. Once you factor in inflation, the number you need for a comfortable retirement may seem like too much, but this is why life insurance can be the key to solving your retirement planning woes.

Term life insurance is a type of insurance that only covers a specific period. This type of insurance can come in 5, 10, or 15-year terms and is considered the most value-laden option because it’s more affordable than other types of insurance while still providing substantial coverage. 

Usually, this type of insurance is availed when the individual needs a flexible type of insurance that won’t break the bank while keeping their assets and their loved ones financially protected.

Term life insurance with a conversion option functions just like term insurance, except policyholders are given the option to convert their policy when it lapses.

Since term insurance is usually used to determine whether the policyholder finds the policy valuable, the conversion option simplifies the process for them. If the policyholder decides to convert their term life insurance into a permanent one, they can do so without the need for additional documents. They simply need to sign off on the new policy and pay the additional premiums if needed.

Unlike the term life insurance option, which covers only a set amount of time, permanent life insurance offers lifelong coverage for the policyholder. Some types of permanent life insurance can even have a cash value component that’s projected to grow over time.

These are the different permanent life insurance policies:

A whole life insurance policy is set to protect you for life. This type of policy will have a fixed premium that’s calculated according to your age when you get of it. The older you are when you’re applying for whole life insurance, the higher the premiums get.

Since whole life insurance policies have fixed premiums, they’re often the best option for policyholders looking for a predictable expense.

Variable life insurance or VUL insurance is another type of permanent life insurance. These policies have a dedicated savings component that the policyholder can invest in various sub-accounts, like mutual or index funds, for potentially higher returns.

In the event of the policyholder’s passing, the beneficiaries will receive the current fund value of the policy.

The variable life insurance policy is an excellent option for individuals who want to automate their savings and investing. However, there are also one-time pay options for individuals who wish to invest in their financial protection once and simply wait for it to grow.Renewable Term Insurance allows policyholders to renew their coverage without undergoing a medical exam. While premiums typically increase with age, the convenience of maintaining coverage without requalification make it an ideal option for those with evolving financial circumstances.

One of the benefits of certain permanent life insurance policies is that they can grow over time because of their investment component. The growth from these funds can serve as a source of additional income for you during your retirement years through withdrawals.

Additionally, some permanent life insurance policies accumulate cash as well. The cash value of these policies can augment your income in times of need through policy loans.

• Withdrawals are when you can withdraw from your variable life insurance policy’s gains without incurring charges.
• Policy Loans are when you borrow against your permanent life insurance policy’s cash value. This loan does not incur immediate taxes, nor does it require repayment. However, failure to pay for the loans will reduce your policy’s death benefit and accrue interest.

Utilizing the cash value of your insurance policies can give you a financial cushion, especially in times of need.

A huge advantage that life insurance policies offer is their tax benefits. When you take these tax benefits into account, you can maximize the value of your retirement plan.

• Tax-Deferred Growth - Permanent life insurance policies grow on a tax-deferred basis, which means that your earnings are not taxed as they accumulate.
• Tax-Free Death Benefit – Your beneficiaries are entitled to receive your life insurance payout in full, meaning no income taxes, which gives them the benefit of preserving your wealth.
• Potential for Tax-Free Loans – Typically, the loans taken against the life insurance policy’s cash value are not classified as taxable income, which gives you a tax-efficient way to get funds in a punch.

When you consider the tax advantages of life insurance policies, you can see how they can protect your retirement plan from decreasing in value.

One of the biggest costs that can deplete your retirement plan is healthcare. Medical care costs can balloon, especially for chronic illnesses, which is why life insurance policies with medical riders can be an excellent investment.

While these riders may add to the total premium of your policy, the peace of mind that these riders offer is worth it. Mainly  because they can help soften or even completely cover unexpected medical expenses without derailing your retirement plans.

• Critical Illness Rider – This rider provides the policyholder with a lump sum benefit upon diagnosis of a covered critical illness. Covered critical illnesses can vary per insurance policy. The payout from this benefit can be used for medical treatments, recovery, or daily expenses.
• Hospital Income Benefit Rider (HIB) – This rider gives out a daily cash benefit if the policyholder is hospitalized due to illness or injury. It can also help cover hospital expenses, loss of income, and other hospitalization costs.
• Accidental Death and Dismemberment (AD&D) Rider – This rider provides beneficiaries with an additional payout if the policyholder passes away from serious injuries or an accident.
• Waiver of Premium Rider – If the policyholder becomes disabled or critically ill, this rider waives all future premium payments while keeping the policy active.
• Surgical or Medical Reimbursement Rider – This rider reimburses medical or surgical expenses incurred during hospitalization, which can help lessen the cost of treatment and procedures.

Before getting a life insurance policy for your retirement plan, you need to evaluate your financial objectives first.

• Income Replacement - Determine if you need life insurance to replace income for your dependents in the event of your passing.
• Estate Planning - Consider whether life insurance can help cover estate taxes or provide an inheritance for heirs.
• Supplemental Income - Assess if the cash value component aligns with your need for additional retirement income.

Compared to term life insurance, permanent life insurance policies tend to be significantly more expensive and often require a longer investment period. With that in mind, it’s important to weigh the pros and cons before deciding:

• Premium Affordability – Make sure that premium payments fit your budget without compromising other financial priorities.
• Cash Value Growth - Research the projected growth of the policy's cash value and how it will align with your retirement timeline.
• Rider Options - Evaluate the availability and cost of riders that can give your plan additional benefits.

Finally, the final step is to consult with a financial professional. Yes, the task of retirement planning can be overwhelming, but with the right professionals in your corner, you can make a comprehensive plan. Financial advisors can guide you in finding and getting a policy that suits your needs and your budget.

If you’re ready to start life insurance savings for retirement, contact us at Allianz PNB Life. Our team of financial advisors is ready to help you create a life insurance strategy that fits your unique lifestyle.