Learn and Plan | Life insurance as part of retirement planning
An older couple works with a life insurance agent to help with a retirement plan

Life insurance as part of retirement planning

Jul 10, 2023, 7:10:51 PM | Reading Time: 3 minutes

As you plan and save for retirement, you have many options for building your financial strategy. One option you may not have considered as you create a retirement income plan is life insurance. Along with the valuable death benefit protection it can offer to your loved ones, coverage from a permanent life insurance policy can also help defer taxes1 and provide an opportunity to grow cash value that you can use for a variety of needs when you retire.

Can I use life insurance for retirement?

Along with providing a death benefit to your beneficiaries, life insurance can also play a role in your comprehensive retirement income plan. Perhaps you need to boost your savings for the future or close income gaps between your retirement accounts and estimated expenses. Maybe you’ve reached the contribution limits on your individual retirement plan. With the guidance of a financial professional, you can determine if life insurance is a good option for helping supplement your retirement income down the road.

How can life insurance help plan supplement retirement income?

Many permanent life insurance policies can build cash value over time. You can access cash value through policy loans or withdrawals2 and the money could be used for a generally tax-free income stream.3 Life insurance provides needed death benefit protection and the opportunity for tax-deferred cash value growth potential. Including life insurance as part of your overall retirement income plan can offer:


Cash value can provide a source of income once you retire, and with some policies, could help with a life event, such as an illness, or unexpected expense. Generally, most policies do not have an age requirement for a policy loan. If you take a policy loan, you typically do not need to repay this loan, but it will accrue interest. If left unpaid at the time of your death, any loan amount will be deducted from the death benefit, meaning your beneficiary will receive less funds.

Lower tax burden during retirement

If you use the cash value from your life insurance policy to help supplement your retirement income, you might be able to reduce the amount you withdraw from other retirement sources. When it comes to tax rates, we don’t know what the future holds in store. Taking less income from other retirement sources could help keep you in a lower tax bracket.1,2

In addition to providing financial protection for your loved ones, life insurance can be a valuable way to help supplement your income needs once you retire. Check out this video to explore how life insurance can help with retirement planning.

1. Neither Midland National Life Insurance Company nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements. The tax-deferred feature of the universal life policy is not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing a policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.

2. Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent cash value of the contract exceeds premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefit. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation. .

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

Life insurance policies have terms under which the policy may be continued in force or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. Current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write Midland National Life Insurance Company at One Sammons Plaza Sioux Falls, SD 57193. Telephone 800-923-3223.