Life insurance is usually associated with the young. Younger adults, particularly those with children under their care, are typically encouraged to take a life insurance policy to ensure that their dependents have some sort of financial backing in the event of their untimely demise. Beyond this, these policies can also serve as an invaluable tool in the retiree’s financial arsenal, particularly for those who have maxed out their contributions to 401(k) and other retirement accounts.
Life insurance policies can provide a retired married couple with some assurance that their spouse would have an additional, tax advantaged source of funds should one of them outlive the other. The death benefit payout received by the bereaved widow or widower would then be used to fund other sources of retirement funds.
The many varieties of cash-value life insurance can also provide retirees with another tax-advantaged place to store their excess retirement funds, delivering an interest payout as the funds accumulate. These funds can be accessed while the individual policyholder is still alive, in the form of a loan or withdrawal, which are tax-free. When used at the appropriate circumstances, this method can deliver some retirees with yet another source of retirement revenue.
However, there are a few disadvantages to this strategy as well. Insurance costs can affect the performance of the policy as an investment asset. Likewise, policyholders should choose when they take out a loan or withdrawal from the policy carefully; the amount is deducted from the final death benefit unless it is paid back.