4 Reasons Why Life Insurance is an Essential Tool for Retirement Planning

Many retiree’s worry about running out of money but are unaware how life insurance can help extend the life of their money. Here are 4 reasons why considering life insurance as part of your asset portfolio may be a good idea.

A Life Insurance Death Benefit can replace lost Social Security Income.

When a Social Security beneficiary dies, the surviving spouse is eligible for survivor social security benefits. But the spouse will not be able to keep both their social security income and the survivor’s benefit. What this means is that the surviving spouse must choose whether or not they want to keep their Social Security income or the survivor benefit.
The surviving spouse will, of course, keep whichever benefit is larger.

The result is that the surviving spouse is now without a portion of income that they once formally enjoyed. This could potentially be as much as $2000 a month. Such a loss can make the difficulty of losing a loved spouse all the more difficult.

The surviving spouse could take a greater withdrawal from their investments to cover lost income. But when so many retirees have not saved enough money, it may be unrealistic to count on extra money being available. A life insurance policy, therefore, can be used to reimburse the remaining spouse the loss of income.

The death benefit from the first to die spouse life insurance policy replaces funds consumed in the first part of retirement.

It is very easy to overspend in retirement. If too much money is spent at the beginning of retirement, your retirement savings could be depleted sooner than anticipated and not have enough money to cover healthcare expenses at the end of life. Therefore, finding creative ways to replenish retirement savings is important.

A life insurance policy death benefit can replenish retirement savings so that the surviving spouse is able to resume their lifestyle. Imagine retiring with $250,000 of assets and receiving a death benefit of $250,000 when the first to die spouse passes away. This death benefit is a taxfree paycheck to your spouse, which will help them to finish out their life without worrying about money.

Life Insurance can help prevent you from selling in bear markets.

The old adage to buy low and sell high may seem obvious. However, following through with his sage advice has proven much harder. When money is in a qualified plan such as a 401(k) or traditional IRA, at age 70 ½ the government mandates Required Minimum Distributions. What this means is that the government is going to tell you the minimum amount you must take out of the plan every year for the rest of your life. Most people, however, take more than the required minimum distribution to maintain their lifestyle.

But you need to know that distributions are required from qualified plans regardless of investment returns. In 2008, the market plummeted by nearly 40%. Many retirees saw their qualified plan balances cut in half. This was a bad time to sell investment money. By selling when the market was low, the investor made their market losses permanent.

Life insurance can help extend your life in bear markets. The first thing you will need to do is only take the required minimum distribution from your qualified plan. The rest of your money needed for your lifestyle should then be borrowed from the cash value of your life insurance policy on a tax-free basis. The result will be that more money remains invested into the qualified plan and will have the opportunity to grow when the stock market rebounds.

A Life Insurance Policy Could Provide Money for Long Term Care.

The cost of long-term care is a real problem. Long Term Care insurance is used to pay for assisted living, nursing home care, or home health care. The premiums for this type of insurance are expensive. It is possible to have this policy for 20 years without a benefit. Imagine discontinuing a policy after paying into it for 20 years because you can no longer afford it, to only need the benefit a short time after the policy has lapsed. This is a common scenario for many older retired people. 

The good news is that some life insurance carriers have what is called an ‘Accelerated Benefit Rider.’ A good insurance company will not charge for this rider. What this rider does is allow the insured to receive a portion of their death benefit, while they are still living, if they are unable to perform 2 of the 6 activities of daily living. For a small administrative fee, the benefit is provided to you from the life insurance policy.


Permanent life insurance is a powerful tool that should viewed as an asset to your wealth portfolio. You’ve worked hard to prepare for retirement. It is important that your money lasts as long as you do! Working with a competent and independent financial advisor will help you understand if life insurance should be a part of your asset portfolio. I would be proud to do so.