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If you are seriously thinking about planning for your retirement and planning out your finances, congratulations — you are on the right track. Give yourself a pat on the back because you are well on your way towards financial freedom in your golden years. Securing the lifestyle you’ve become accustomed to even after you retire and your income is lower must include a carefully selected life insurance policy.

Life insurance can serve as a risk management tool that can act as income replacement if the worst should happen, but it is actually more than that. Life insurance, if maximized, can have multiple benefits. Here are some of them:

Have More Disposable Income

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If you want to maximize your life insurance for your retirement planning, it is best to get a term life policy, also known as pure life insurance. According to Allstate, term life insurance guarantees the payment of a stated death benefit during an agreed term. If that agreed period expires, you can choose to renew it for another cycle, allow the policy to terminate, or convert it to a permanent coverage policy. This way, you can use term life insurance as an effective retirement savings tool by giving the necessary financial protection to those you will leave behind in case anything happens to you.

Since this insurance is less expensive than other types, you can have more disposable income that you can use to buy long-term disability insurance, to build your emergency fund, or to invest in the stock market. When you have disposable income, make sure to invest it in other money-making vehicles. A long-term disability insurance plan is another way of protecting your income as you prepare for your retirement.

This insurance is a must so that in case of a serious illness that incapacitates your ability to earn money, you will not be left in financial straits. You should not solely rely on your disability benefits from Social Security because it is not enough and it is often difficult to qualify for the said benefits. When doing so, make sure that you get a policy that comes with guaranteed renewable and non-cancellable policy. This way, you have the assurance that you are protecting your income, which is one of the ways of how you can plan your retirement. You have to remember that without income, you have no means to save up for retirement.

Act as Retirement Income

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Life insurance can be a means to support a retirement income. By executing a 1035 exchange, you can transfer funds from your life insurance to a new policy or an annuity to provide lifelong income without the burden of paying taxes. This strategy is possible if you no longer want to have a substantial death benefit but instead want to convert it into a monthly income.

Similarly, you can also surrender your policy for its cash value. You can take advantage of the recent tax reform bill, which made significant changes to how the gain is computed for life insurance sold in the secondary market. However, it is still likely more beneficial to use a 1035 exchange rather than sell your policy on the secondary market.

Non-Market Correlated Asset

If you have a non-modified endowment contract (non-MEC), you can also withdraw cash value free from income taxes. Retirees can use this as a means to have an income without causing any unnecessary increases in their tax liabilities. This way, you can make good use of the cash value without affecting your investment assets, allowing it to recover while you meet your spending needs. You avoid selling your assets, and you also improve your retirement investment portfolio’s longevity.

Long-Term Care Services

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When planning for your retirement, you have to take into consideration all the clauses included in your life insurance policy. Make sure that your policy has an accelerated death benefit clause. This clause can give you an early payment of the death benefit during given situations. For instance, life insurance from Allstate gives you long-term care service. With it, they might be able to pay you earlier. If not, you can buy this long-term care rider or convert it through a 1035 exchange that comes with a long-term care rider. Life and viatical settlements are another way to use your life insurance to pay for long term care as you age. Click here to learn more.

Pension Maximization

You can use your life insurance to offset the loss of an annuity, pension, or Social Security benefit due to the loss of a spouse. You can buy life insurance that allows the surviving beneficiaries an asset to make up for the lost payment. This pension maximization strategy can serve as a protection of annuity payout for the ones left behind. Get this strategy as early as possible, so the premiums are lower than when you actually need to use it later on. The same is also possible with Social Security. Should you and your spouse be eligible to collect Social Security, you have to note that at least one of the benefits will be lost should either of the spouses pass away. That said, you have to protect these benefits by buying life insurance.

Key Takeaways

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Life insurance is often viewed as a benefit during your active years. It can also be maximized to provide the best possible financial solution for you in your retirement years. Life insurance, in a way, is a means to secure various streams of income. It can be used to transfer wealth, provide long-term care benefits, provide liquidity of estates, and even help with tax diversification. It can also make your retirement plan as flexible as possible, depending on your needs. If you have life insurance purchased, carefully review its inclusions, and see what areas you can maximize. If you or your partner do not have insurance yet, it is time to consider it as part of your proactive retirement planning.

If you want to maximize your life insurance and use it for your retirement planning, you have to make sure that you are getting the best death benefit for your family. Ensure, as well, that your family has the right mindset when it comes to finances. All your efforts will be lost if those left behind cannot make good use of your money.