Although tax-deferred savings plans can help you fund your retirement, they have considerable limitations. For example, total combined contributions for IRAs are capped at $6,000 per year or $7,000 if you’re over 50. Likewise, 401(k) contributions are capped at $19,500. Thankfully, there are many ways to supplement these kinds of retirement accounts, and purchasing life insurance is one of them.

Whole Life Insurance 

Whole life insurance refers to policies that don't expire after a certain number of years. The death benefit is guaranteed, so these policies cost considerably more than term plans, which expire. 

Whole life insurance accumulates a cash value over time. This money can be borrowed against or distributed in the form of dividends. If you opt for dividends, you won’t have to pay taxes on the distributions until they exceed the premiums you’ve paid. 

If you borrow against the policy, the funds will be subtracted from the death benefit. Either way, such funds can be used for unanticipated expenses that arise after you leave the workforce, preventing you from dipping into your savings. You can use the money to pay for medical bills, vehicle repairs, and relocation expenses that you didn't expect when crafting your retirement plan. 

Universal Life Insurance 

Universal policies are also permanent, but they’re more flexible than whole life options. When you’re doing well, you can contribute a lot toward the cash value, and you can contribute less when times are tough. 

These policies include investment vehicles as well. The carrier credits the returns to the policyholders after deducting the premiums. While this practice can pay off considerably, universal life insurance comes with additional risk since investments aren't guaranteed.

Like whole life insurance, the payouts provided by a universal policy can serve as a safety net when your monthly expenses are higher than anticipated. This can be a godsend for those who are living on a fixed income after retiring. 

Annuity

Once you build up a significant cash value through your whole or universal life insurance policy, you can convert it to an annuity. Funded with lump sums, annuities provide a steady stream of income in the form of fixed regular payments for the rest of the policyholder’s life. While there can be tax benefits of annuities, they usually come at a cost, which is typically eliminating the death benefit. 

Annuities are ideal for those who are worried about putting enough away for retirement. The consistent payouts will bolster your stream of income so that you can meet all your obligations from month to month after leaving the workforce. They can also come in handy when paying for long-term care at a nursing home. 

If you’re looking for life insurance coverage or updates, Premier Financial Agency will help. Owner Teresa Smith is licensed to work with clients throughout Arkansas, Texas, Oklahoma, Louisiana, Mississippi, Missouri, Tennessee, and Alabama. She offers a variety of life insurance policies, from term policies to universal coverage, in addition to annuities and retirement planning assistance. To request a free quote, call (870) 740-8661 or visit the agency’s website.