How To Use Life Insurance For Retirement Income

How to use life insurance for retirement income: Many people see life insurance as a basic means to financially assist their beneficiaries after they pass away. However, some types of life insurance, like universal life and whole life insurance policies, also give living benefits and accumulate cash value to provide earnings from income during the lifetime of the policyholder. Contrary to these extra features, the basic objective of life insurance is to provide financial security to your family in the event of your death.

How To Use Life Insurance For Retirement Income

On the other hand, if you do not have any beneficiaries or dependents, there are financial instruments for retirement planning that you can turn to. Besides, you should not build retirement savings through life insurance. There are more efficient investment tools, like 401(k) plans and IRAs. Nonetheless, if life insurance is what you want to consider as your financial portfolio, it is important to look around.

This is because by comparing quotes from various life insurance providers, you can gain an understanding of the different ranges of quotes available and find out which one suits your budget and needs. This article shows how some insurance quotes may meet your wider financial strategy and stabilize your needs with retirement planning and other long-term objectives.

Can You Use Life Insurance to Fund Retirement?

Yes, life insurance policyholders can use their policies to fund retirements. However, making use of this strategy is more ideal and suitable for specific types of policies. Take permanent life insurance policies as an instance.

We have universal life and whole life insurance under it, and they are appropriate for this process because they support cash value buildup over time. Thus, you can use the cash value as a source of retirement income and have an extra layer of financial security beyond those offered by traditional retirement accounts like 401(k)s and IRAs.

Pros and cons

Here are some of the advantages and disadvantages of using your life insurance policy for retirement income:


  • Additional benefits.
  • Flexibility.
  • Tax advantages.
  • Stable investment.


  • Risk of lapse.
  • Complexity.
  • Cost.
  • Opportunity cost.

How to Use Life Insurance for Retirement Income

Here are the strategies that will help you use your life insurance for retirement income. Follow these four simple steps to begin:

  • Purchase term life insurance.
  • Establish an emergency fund.
  • Explore long-term disability insurance.
  • Invest any remaining funds.

Purchase term life insurance

For individuals who have children or dependents and are not independently wealthy, having a life insurance policy is important. For working spouses and non-working spouses, the same applies to them. If you are a homemaker or a stay-at-home spouse, you should purchase a life insurance policy. As for working spouses, you need to have sufficient insurance to manage future needs and debts. The non-working spouse needs insurance coverage for other costs, like care expenses, to handle the household.

Establish an emergency fund

Establishing and putting together the savings from term life insurance premiums is a good way to create emergency funds. You can start by building an emergency fund for 3 to 6 months of living expense coverage. Apart from helping you maintain regular contributions to retirement savings, it also helps with unanticipated large expenses.

Explore long-term disability insurance

Another way to use your life insurance for retirement income is by discovering long-term disability insurance options.  Even though this type of insurance is important as it helps you cover lost income when you are not able to work, if you are receiving coverage from your employer, it is not enough. A good alternative is Social Security Disability Insurance, also known as SSDI, as it gives benefits. However, it can be hard to qualify.

Invest any remaining funds

Lastly, invest in any remaining funds. The principle of “buy term and invest the rest” shows the investment of savings from selecting term life insurance over permanent life insurance. At first, some of the savings will be for an emergency fund and disability insurance. As for the remainder, it goes directly towards investments. If you are looking to achieve a long-term goal like retirement, you should consider tax-advantaged accounts if you meet the required criteria.

Alternative Ways to Help Pay for Retirement

If you do not want to use your life insurance to cover retirement income, here are some alternatives that you can try out:

  • Emergency fund.
  • Retirement accounts.
  • Social security benefits.
  • Income annuities.

Thus, your required retirement income is provided when the cash value of your whole life insurance policy accumulates.

Life Insurance for Retirement FAQs

How do Life Insurance Retirement Plans Work?

Life Insurance Retirement Plans, also known as LIRPs, make use of the cash value component of permanent life insurance policies like universal life and whole life. Therefore, providing retirement income to the death benefit. Here is a breakdown of how these plans generally work:

  • Firstly, you pay premiums.
  • Secondly, your cash value grows.
  • Thirdly: tax benefits.
  • Fourthly: withdrawal of cash value and takeout of loans.
  • Lastly, death benefits are provided to beneficiaries.

Is having Life Insurance or a 401(k) Better?

Choosing between life insurance and a 401(k) is not necessarily a matter of one being better than the other. Instead, it is determined by your family situation, investment philosophy, and even financial goals. Risk tolerance is another factor that affects the choice or selection between a 401(k) plan and life insurance.