How does life insurance factor into making decisions on retirement?
For most people, the most important feature of life insurance is income protection in the event of their death for the people who depend on them. If that is your main concern, term life insurance is often the most affordable option. With term life insurance, you purchase insurance for a specific period of time. When the period of time is up, you need to renew the policy – generally at a higher cost – if you want to continue coverage.
Many people purchase term life insurance to cover mortgage payments or the cost of child-rearing or education and drop insurance coverage once those issues are no longer a concern.
Whole life insurance is generally more expensive than term, but premiums do not increase as you get older. Whole life, also called permanent insurance, accumulates some cash value. Over time, you may be able to borrow or use the cash value of your policy. You have to be careful about this because these types of policies may charge fees, or the policy can lapse if you borrow a certain amount and don’t pay it back in time. Although some insurance agents recommend whole life insurance as a way to get tax-free income in retirement, they are not generally the best solution for retirement income. Before purchasing a whole life policy, consider whether it makes sense to buy a lower-cost term policy and direct the money you save into your 403(b) or 457 plan for retirement.
Back to FAQs