Cash value life insurance may help you reduce your premium costs during retirement. Term life policies get more expensive as you age, due to rising premiums and renewal costs when your policy reaches its term limit.
Term and Cash Value Life Insurance
If you renew a term life insurance policy with a fixed premium, that premium will be based on the year you renewed the policy (and reflect your older age), likely resulting in higher payments than a cash value plan with fixed premiums until death. Term life plans may have decreasing benefits over time, or a fixed maximum premium rather than a set value. Your cash value plan will also base premiums on your age at the time of purchase, but because cash value plans don't require renewal, that age can be much younger. While your initial payments are higher, they don't rise, and you can build up your cash value account over time.
Lowering Your Premium With Your Cash Value Account
If you're "paid up," then you have enough money in your cash value account to cover premiums for the rest of your life, and you shouldn't need to worry about maintaining your policy. If you let your cash value account grow over the years, you may be able to retire without making further life insurance payments. While you can take out loans using your account as security or make direct withdrawals, doing so may decrease your policy's death benefit. You can use the cash value account to pay your insurance premiums, which usually doesn't affect the death benefit. If you empty the cash value account, you'll need to pay premiums again to keep the policy active. Some policies allow your beneficiary to collect both the cash value account and the death benefit, so you may not want to use it for premiums.
Life Insurance and Taxes
Term life insurance generally has no tax benefits, although you can invest any savings on premiums (typically from the earlier years of the policy) in other enterprises that have tax benefits. With permanent insurance, your cash value account grows tax-free, and any withdrawals below the amount you've paid in premiums should be tax-free, too. Unlike health insurance, life insurance premiums aren't tax deductible. If you have or want to establish an estate, consider factoring cash value benefits into your estate planning.