The role of life insurance in planning for retirement

When developing a retirement income plan, there are many strategies that can help grow savings and create income for the future. One option that may not immediately come to mind is applying for and purchasing a permanent life insurance policy. Not only can life insurance help protect a family’s financial well-being, but a permanent policy can also provide an opportunity to grow cash value and potentially create an income stream to help supplement your retirement income plan.

Can life insurance be used for retirement?

In many situations, the cash value from a life insurance policy can be used for retirement. Along with providing financial protection for loved ones, certain life insurance policies can offer the potential to build cash value, which can then be used to generate an income stream during retirement. For example, a Life Insurance Retirement Plan (LIRP) uses the cash value from a permanent life insurance policy to help supplement retirement income. These types of policies can accumulate cash value over time, and the account value can be accessed through loans or withdrawals during retirement. By purchasing a life insurance policy, policyholders can potentially create a tax-advantaged income stream in retirement, which can offer another layer of financial security for the future. When exploring ideas for retirement income, a life insurance policy can be a valuable complement to other retirement savings strategies, offering both protection and growth potential.

The role of life insurance for retirement income

In addition to providing beneficiaries with a death benefit, life insurance can also be a valuable addition to an overall retirement income plan. It has cash value growth potential to help close income gaps between retirement accounts and expected expenses. For those who have reached contribution limits on other retirement plans, considering a life insurance policy can offer a potential way to help supplement future income. With the guidance of a financial professional, you can determine if there is a need for life insurance which may be able to help supplement retirement income and enhance long-term financial security.

Is a life insurance retirement plan (LIRP) right for you?

An LIRP may be a good option for individuals who are looking for ideas to help supplement retirement income, especially those who have already maxed out contributions to traditional retirement accounts like IRAs or 401(k)s. It can also be beneficial for people seeking a tax-advantaged way to grow their account value over time since the cash value of permanent life insurance policies can grow on a tax-deferred basis. An LIRP could also benefit those who want to create a flexible income stream for retirement and want access to the cash value through loans or withdrawals. Most importantly, an LIRP can offer the dual benefit of providing a death benefit for beneficiaries while helping support long-term financial goals.

This strategy may be particularly appealing for high-income earners or those looking for more control over their retirement savings since it doesn't have the same contribution limits or required minimum distributions (RMDs) as traditional retirement accounts, although there may be premium limits based on the death benefit need.

Using the cash value in a life insurance policy for retirement

Life insurance can help provide crucial financial support for loved ones after a policyholder passes away. Many of these policies also have the potential to build cash value over time and could serve as a valuable income source in the future. The cash value is typically accessed through policy loans¹ or withdrawals¹ and can generally offer a tax-free income stream,² a benefit when you’re considering ideas to help supplement retirement income. Including life insurance in an overall retirement plan can provide several benefits, including:

Flexibility from LIRPs

Cash value can provide a source of income once a person retires, and could also 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 a person takes a policy loan, they typically do not need to repay this loan, but it will accrue interest. If left unpaid at the time of the person’s death, any loan amount will be deducted from the death benefit, meaning the beneficiary will receive less funds.

LIRPs for lower taxes in retirement

When the cash value from a life insurance policy is used to supplement retirement income, it may help reduce the amount withdrawn from other retirement sources. Since future tax rates are uncertain, withdrawing less from other retirement accounts could potentially help keep individuals in a lower tax bracket.²

Security for loved ones with LIRPs

With a life insurance policy that includes both a death benefit and cash value, policyholders can plan for both their own financial future and the security of their loved ones. Individuals can use the funds accumulated for retirement without sacrificing the financial protection intended for their beneficiaries, making LIRPs a powerful tool in a well-rounded retirement plan.

Partner with Midland National to help you reach your retirement goals

As you consider your options for creating reliable income in retirement, remember that Midland National specializes in helping individuals and families achieve their financial goals. With a long-standing reputation for excellence, Midland National offers a range of retirement planning solutions—including life insurance and annuities—designed to help you protect those who matter most, grow your savings, and generate income.

Ready to see how Midland National can support your retirement vision? Find a Midland National financial professional today.

1. 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 the 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 before age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefits. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation.

2. 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 for 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.

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 877-872-0757.

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.

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