The much-discussed retirement crisis has transitioned from mere speculation to a stark reality, as inflation and interest rates have surged to unprecedented levels in recent months. In June 2022, consumer prices experienced a staggering 9.1% increase, marking the largest surge in four decades. This alarming trend coincides with a growing elderly population relying on fixed incomes, a situation exacerbated by the early retirements prompted by the pandemic. Consequently, a colossal problem has materialized before us.
Many older Americans remain oblivious to the fact that their life insurance policy possesses substantial value as a liquid asset. Contrary to common perception, life insurance serves a purpose beyond providing for loved ones upon one’s demise through the death benefit. In reality, permanent life insurance policies can offer a means to access funds for retirement planning and healthcare expenses precisely when they are most needed.
Regardless of one’s age or financial status, comprehending the genuine worth of your assets becomes crucial for realizing the retirement you truly deserve. Consider the following three methods through which your life insurance policy can contribute to funding your retirement aspirations.
#1 Explore the option of liquidating your life insurance policy via a life settlement
For millions of Americans that own a life insurance policy, selling it through a life settlement can be a great way to access cash when it’s most needed. A life settlement involves selling a life insurance policy for lump-sum cash payment that is more than the cash surrender value, but less than the death benefit. Despite decades of industry innovation and growth, some 200 billion dollars in life insurance is lapsed each year that could have been sold as a life settlement.
While the life settlement process once took 2-4 months, AI technology has expedited the process, making it easier than ever the get a life settlement valuation. Policyholders can now use a free life settlement calculator to instantly see how much their policy is worth based on a few simple questions. Just as you track the value of your house on Zillow or your car on Autotrader, understanding the value of your life insurance policy is critical to make the best financial decisions for you and your family.
#2 Acquire the monetary worth from a permanent policy’s cash value
When you make payments for your permanent life policy premium, only a part of it is allocated to cover the life insurance cost. The remaining amount is invested in an account that allows the cash value to grow without immediate taxation. As you get older, you’ll have the option to access the interest earnings from this investment account, which can help reduce the amount you need to pay out of pocket for your premium, while keeping your policy in force. In essence, the funds in this account serve as tax-advantaged emergency savings.
#3 Utilize a policy loan to borrow funds from your insurance policy
Americans with whole life insurance that have accrued enough cash value to cover the debt can also use their policy as collateral through a whole life loan program. One major benefit is the interest rate will be much lower than what you’d see with credit card debt or an unsecured personal loan. This allows the policyholder to get a one-time, tax-free distribution that can be paid off with interest in life or be withdrawn from your life insurance policy’s death benefit. Retirees might be able to go through their insurance carrier if whole life loans are offered or utilize a third-party whole life loan program instead.
This is a great alternative for seniors considering canceling their whole life insurance policy. While forgoing your policy will get rid of premiums, it will also get rid of your coverage. Whole life loan programs are a great way to avoid paying policy premiums without losing the death benefit.
#4 Retrieve the cash surrender value of an insurance policy
If you’re nearing retirement and can’t afford your policy premiums, you can choose to surrender a permanent policy, which immediately ends your coverage. Individuals who surrender their policy will receive a check that includes the cash surrender value of the policy minus the surrender fees. Cash-surrender value is the amount of money a policyholder receives by surrendering their policy to the insurance company, typically equivalent to the current cash value of the policy minus loans, interest, and surrender fees.
While surrendering your policy is an option, a life settlement will yield a significantly higher amount. Policyholders will receive one “take it or leave it” offer from their insurance companies if they choose to surrender, and only get a small return.
Your life insurance serves as more than just a protective measure—it holds significant financial value as an asset
As the senior population in the United States experiences rapid growth and is projected to comprise 20% of the total population by 2050, the challenges associated with retirement funding will persist unless adequate measures are taken. Life settlements have emerged as an increasingly embraced solution, particularly in light of recent economic instability. By unlocking the full value of your assets, you can achieve the retirement lifestyle you’ve long aspired to, without straining your finances.
