Is Life Insurance the Missing Piece of Your Retirement Plan? 5 Questions to Find the Right Policy
September is Life Insurance Awareness Month. What better time to take a look at the best way to find a policy that supports you and your family up to retirement and beyond?
For most of my career, I've watched Americans think about life insurance the same way. It's something you buy to protect your family if something happens to you. That's still true, but it's no longer the whole story.
Not only are people living longer, but roughly 11,000 Americans reach retirement age every day, according to the Alliance for Lifetime Income by LIMRA, and trillions of dollars are beginning to move from one generation to the next.
As a result, families are asking harder questions about retirement planning, how to make their savings last and how to leave something behind. Life insurance, when used well, can help answer all three of these questions.
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Most insurers are now focused on developing products that solve real protection and long-term financial needs, with products that are less market-sensitive and more capital-efficient for the people who own them.
Consumers should view life insurance through the same lens. Before you buy a policy, here are five questions worth asking.
1. What do I want this policy to do?
Term life insurance is built to protect your family during your working years. It's affordable, straightforward and often the right first step. Permanent policies, including indexed universal life insurance, can do more. They build cash value over time that you may be able to access later in life.
It's important to be clear on what you want the policy to do. If you need coverage only for a set period, term may be the right answer. If you want a policy that can not only provide financial protection for loved ones, but also transfer wealth to the next generation, you are likely looking at a permanent product.
2. How does the cash value grow, and what happens when markets drop?
If you're considering permanent life insurance, ask how the cash value grows and what protects it when markets turn. Some products tie growth to a market index with a floor that limits losses in down years. Others carry more direct market exposure.
There is no single right answer. What matters is that you understand how your policy performs in both a good year and a bad one, how much risk you're comfortable taking and how that fits with the rest of your savings.
3. How can I use this policy during my lifetime?
A life insurance policy is not only for after you're gone. Many permanent policies let you access the cash value through loans or withdrawals while you're living. That flexibility can be useful as your financial needs change over time.
Also ask about riders, as some policies let you access part of the death benefit early if you face a chronic or serious illness. Those benefits can matter as much as the payout itself.
If you're working with a financial professional, ask them to explain how using a policy's living benefits could affect the death benefit.
4. How does this policy fit with everything else I'm planning?
Life insurance works best when it's part of a comprehensive plan. As part of your retirement planning, for example, assess your 401(k), your IRAs, your Social Security timing and all other assets together.
A financial professional can help you see how a policy supports the rest of the plan, including how it can:
- Protect a spouse
- Cover taxes on an inheritance
- Give you flexibility if one part of the plan doesn't perform as expected
- Help replace income that could be lost when a spouse passes away, including income sources for Social Security benefits
5. What do I want to pass on?
Life insurance has long been one of the most efficient ways to transfer wealth. In most cases, the death benefit is income-tax-free to your beneficiaries It can arrive at a time when families need it most, helping to replace lost income and provide financial stability during a difficult transition.
Think about what you want to leave behind and then ask whether your policy is built for that specific outcome.
Making life insurance part of your comprehensive financial plan is all about finding the right policy that can do real work for you over a long life, while helping to protect the people you care about most. Start with what you want and let the product follow.
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