Whole life insurance in a lifetime financial plan

With this understanding of life insurance pricing, I can create a simple model to consider four different potential roles for this whole life insurance policy in retirement income planning. First, the death benefit for life insurance provides a method of achieving an inherited objective using the pooling of risk and tax benefits that is distinct from the preservation of investment assets for this purpose. This can allow the retiree to potentially benefit from a higher standard of living in retirement than would otherwise be possible, while ensuring that assets have been allocated to meet the inheritance goal.

Second, a permanent death benefit backed by whole life insurance can be integrated into a retirement income plan by helping the retiree justify their decision to purchase an income annuity and overcome the behavioral barriers that lead to the headache. of the pension. It may also allow the retiree to purchase a single life annuity that provides the most mortality credits to the risk pool and therefore provides the highest payout rate to the owner. Wealth Building Cornerstones, the company that developed this strategy, calls it the hedged asset strategy.

The key idea is that the retiree can feel comfortable purchasing an income annuity because it is understood that the life insurance death benefit will return the amount spent on the annuity premium to the household. upon death when annuity payments cease. Unlike obtaining a form of life insurance for the household through the annuity by adding cash repayment provisions or a joint living option, this integrated approach with a separate life insurance policy creates greater flexibility for the household by reducing the required annuity premiums needed to meet a spending goal.

Next, cash value whole life insurance also offers some attractive options for a retirement income plan. Cash value can serve as a volatility buffer to help manage sequence risk in retirement. This strategy was also developed by Wealth Building Cornerstones. The redemption value does not present a risk of capital loss in the face of rising interest rates. It is guaranteed to grow and can provide a temporary resource to supplement retirement expenses rather than being forced to sell portfolio assets at a loss in poor market environments.

Finally, when considered net of fees, taxes, and insurance needs, the accumulation of cash value in a whole life insurance policy can serve as an alternative and competitive way to invest in income-generating assets. fixed as opposed to using bonds or bond funds in a traditional investment portfolio. . We consider each of these four ideas in turn with a case study.

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*This is an excerpt from Wade Pfau’s book, Safety-First Retirement Planning: An Integrated Approach for a Worry-Free Retirement. (Retirement Researcher’s Guide Series), available now on Amazon

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