6 Reasons to Use Whole Life Insurance For Retirement Plans

When it comes to planning for retirement, many people focus on traditional vehicles such as 401(k)s, IRAs, and pensions. However, one often overlooked — yet highly beneficial — tool can be whole life insurance. We get asked about this a lot at Schromen Law, and while we certainly encourage you to reach out to your financial planner, we wanted to share a closer look at the benefits of incorporating whole life insurance into your retirement (and overarching financial and estate planning) strategy. 

1. Guaranteed Death Benefit: Whole life insurance (sometimes known as permanent life insurance or cash value life insurance) guarantees a death benefit regardless of age upon death, which ensures that your beneficiaries will receive a specified insurance amount upon your passing. Dying is expensive, carrying an average of $24,204 in death-related expenses across the United States. Coincidentally, Minnesota is the 13th most expensive state, averaging $25,228 in 2023.  The guaranteed whole life insurance death benefit can provide peace of mind knowing your loved ones will be financially supported, regardless of market conditions, asset performance, or the timing of your death.  
2. Cash Value Accumulation: One of the most attractive features of whole life insurance is the cash value component. Unlike term life insurance, whole life policies build cash value — literal cash equity sheltered within the policy — which can be used over the lifetime of the insured. The cash is built over time from premiums paid, which then grows on a tax-deferred basis. This means you don’t pay taxes on the gains as they accumulate, which is a similar tax structure to many other retirement tools. Retirees who have large cash values can then be more strategic with their retirement distribution strategies and can often take on greater risk within other investment tools in pursuit of greater investment gains. Cash values can also be annuitized, which can further supplement cash flow in retirement.  
3. Protection Against Market Volatility: Traditional retirement investment tools, such as stocks and mutual funds, are subject to market fluctuations. Markets follow cycles, meaning that what goes up must come down, and vice versa; the trick is that no one can time the market, so having a variety of investment strategies and tools can create the highest statistical likelihood of financial success. Whole life insurance provides a stable and predictable component to your retirement plan. The cash value growth and death benefit are not directly tied to market performance (unless otherwise built to be), which provides a level of security and protection against market volatility. As an added bonus, those with large cash values actually have the ability to maximize market downturns, as they can take the cash from their policies to buy low and then pull money out of the market and back into the policy when the markets have recovered and are at a high.  This is exactly how the wealthy were able to capitalize on the 2008 housing market crash or the COVID market downturn.   
4. Access When You Need It: Many retirement accounts have accessibility rules set by Congress, most commonly based on the age of 59 1/2. However, with a whole life insurance policy, there are few rules on when or why you access the cash value while you are alive. If you want to retire early, cash values can help to cash flow. 
5. Estate Planning Benefits: As mentioned before, whole life insurance death benefits cannot be outlived; they literally cover a whole life. That death benefit can provide cash to pay state taxes, debts, and other final expenses, ensuring your estate (and portfolio) is preserved for your heirs. Additionally, life insurance proceeds generally pass to your beneficiaries income tax -free, providing them with a financial advantage. 
6. Flexibility in Retirement Planning: While whole life insurance can be useful in retirement for cash flow, market buffers, early retirement accessibility, or annuitization, an added potential is the ability to add riders — the insurance term for “enhancements” — to your policy.  An increasingly popular rider is a long-term care tool, which can help to cover the rising costs of care without necessarily needing to build out an additional and separate policy.  This flexibility can enhance your financial security and give you more control over your retirement years. 

High level, incorporating whole life insurance into your retirement income plan can provide a multitude of benefits, from guaranteed death benefits and cash value accumulation to tax advantages and protection against market volatility. While it may not replace traditional retirement savings vehicles, it can complement them by adding a layer of security and flexibility. Of course, it’s always best to consult with a financial advisor to determine how this can fit into your overall retirement plan. Contact us today if you’d like a referral for a financial planner.  

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Schromen Law, LLC and the reader.  The views expressed in this article are not a statement of support or endorsement by Schromen Law, LLC.  The information contained herein is not offered as legal or medical advice and should not be construed as legal or medical advice.