How to Use Life Insurance as a Retirement Secret

Life insurance is often seen as a protective measure that provides benefits after the insured person’s death. Still, many retirees are unaware that, when used strategically, it can also help build wealth and provide income in retirement.

Some retirees overlook opportunities to use life insurance for tax-advantaged income, enhanced cash flow stability, and rising healthcare costs because they assume their life insurance products are “set it and forget it.” When properly aligned with a financial plan, life insurance can support retirement goals without creating an additional tax burden or forcing the sale of assets.

Beem serves as a financial partner, assisting retirees by connecting insurance, health care planning, and budgeting into a single picture through tools like the AI Wallet, BudgetGPT, the Health product in Beem, and Everdraft™. By leveraging these integrated tools, Beem can uncover the full potential of life insurance as a retirement advantage.

Step 1 – Understand How Life Insurance Builds Wealth

Understanding the difference between term life and permanent life insurance is the first step to utilizing your life insurance as an asset for your retirement.

Term life insurance protects for a set period (often 10, 20, and/or 30 years) and does not offer any cash value buildup. Although term life is an inexpensive solution for protecting your family, it does not directly contribute to retirement income.

Permanent insurance, which includes whole life, universal life, and variable life, offers a way to accumulate cash value that you can eventually access through your policy. A percentage of your premium goes toward building this savings/cash-value component, and you do not pay taxes on this growth until you withdraw it from your policy.

This cash value can be used to supplement retirement income, as an emergency fund, or as a means to create a dependable cash flow during years when your investments perform poorly or you aren’t receiving sufficient income from another source.

The Beem AI Wallet will help retirees manage the long-term value of their life insurance alongside their other retirement assets (generally savings accounts, investment accounts, and pension plans), integrating life insurance into a single retirement strategy rather than a redundant document.

Step 2 – Use Cash Value as a Tax-Efficient Income Stream

The cash value of permanent life insurance is an advantage that can provide retirement income through withdrawal and/or loan options as the policyholder needs them. If a policyholder has taken a loan against the cash value of their policy and can make timely, correct payments on the loan, those payments will not be subject to tax because the IRS does not treat them as taxable income. This is particularly appealing to retirees who wish to supplement their retirement income while staying within their tax bracket.

For example, rather than withdrawing more money from a taxable retirement fund, an individual may borrow against their permanent life insurance policy to cover bills, travel, or unanticipated expenses. The life insurance policy remains active while providing retirement income support, and the amount borrowed can be repaid later or offset against the policy’s death benefit.

On the other hand, borrowing against the cash value of a permanent life insurance policy may diminish the policy’s performance or place it at risk of lapsing due to insufficient premiums. AI Wallet provides valuable tools to determine how much money can be borrowed without causing the permanent life insurance policy to lapse or deplete its cash value, ensuring continued coverage for the policyholder.

Step 3 – Combine Life Insurance With Other Retirement Accounts

Life insurance does not work well in isolation; it is best combined with other retirement strategies, such as the current cumulative serving retirement account strategy (401 (k), IRA).

When distributions from traditional retirement accounts, such as 401(k)s and IRAs, occur, the distributions are subject to federal tax. Thus, an individual relying only on either type of account could face a significantly larger tax bill than anticipated in any year following their RMD(s).

Using the ash value of a life insurance policy, combined with either a 401(k) or an IRA, effectively allows a retiree to dictate their taxable income each year. During those years when their income is lower, the retiree may withdraw distributions from their 401(k) or IRA; during those years of higher income or higher tax rates, they would likely want to access their life insurance policy.

Also, BudgetGPT, Beem’s artificial intelligence-based financial tool, is specifically designed to provide a retiree with the tools and resources to create a customized system for determining when to access their life insurance policy or retirement account assets, thereby maximizing an individual’s total income after taxes and preserving long-term assets.

Step 4 – Use Life Insurance to Cover Healthcare and Long-Term Needs

People generally do not know how much medical expenses will increase as they get older. Many people think of retirement as the end of working, but in reality, most of your healthcare costs will happen in retirement. And if you do require long-term care, it can deplete all of your savings within months.

The majority of current permanent life insurance policies offer “living benefit” riders. This provides access to funds while you are still living if you have a chronic illness, critical condition, or need for long-term care. This allows you to manage healthcare expenses both while you are alive and after you’ve passed away.

For instance, a retiree can use the proceeds from the insurance policy to pay for doctor bills rather than having to sell stocks or take out large withdrawals from their retirement plan. Accessing your insurance policy funds will protect your retirement savings and lessen the financial burden during a difficult time.

Beem Health adds to this by assisting the retiree in developing a healthcare plan, tracking their healthcare costs, and providing means to anticipate future healthcare costs. In combination with a permanent life insurance policy, individuals have access to financing their healthcare needs, and the funds provided through the rider option will be sufficient to meet those needs.

Step 5 – Protect Your Loved Ones and Preserve Legacy Value

Life insurance is a critical element of legacy planning, no matter how retirement is planned. Through life insurance, the death benefit provides support to a spouse, children, and even a wide range of charitable beneficiaries. If the policy is set up correctly, a retiree could access their policy’s cash value while still maintaining the policy’s initial protection if something were to happen. 

Retirees will use life insurance while still enjoying its long-term value for their families. 

With Beem Pass, it will be much easier to manage your policy, including all important coverage details, as well as more information about your beneficiaries & the continuity of your life insurance policy. Beem Pass will also give you peace of mind because your family is protected and your critical documents are organized and accessible.

Read: How Beem Pass Supports Healthy Financial Boundaries?

Step 6 – Stay Liquid With Everdraft™ While Keeping Policy Intact

Although policy loans can be highly beneficial, they often require patience and paperwork to receive funds during a time of need (e.g., a funeral/burial).

Everdraft™ therefore offers extensive additional flexibility, allowing retirees to access an emergency fund in as little as 24 hours from the time of application, without charging interest on these funds, thereby providing short-term cash flow assistance until other financial resources are available to repay their policy loan.

Thus, by using Everdraft to meet his/her immediate cash needs and using life insurance as a source of savings and investments in the long term. The two vehicles will allow a retiree to preserve both their savings and life insurance benefits.

Step 7 – Review and Optimize Regularly

Life insurance is never a one-time implementation for retirement planning, and, as it relates to retirement planning processes, an individual must review the entire life policy at least once per year to verify that premiums, coverage amounts, riders, and loan balances still conform to evolving retirement goals.

Changes in a person’s health, income and/or changes to the tax laws may also necessitate a policy adjustment. The AI Wallet application has a built-in feature that provides reminders for premium due dates, monitors cash value growth, and tracks loan balances. By reviewing your policies throughout the year, you ensure that your policies support (rather than hinder) your ultimate goal of a successful retirement.

Real-World Example: Using Life Insurance to Strengthen Retirement

An aging parent with limited income from Social Security and a small pension would face a challenge in keeping up with inflation by increasing withdrawals from their taxed investment accounts.

Instead, this parent strategically borrowed against the cash value of their life insurance policy to help cover the home’s monthly expenses. The Beem AI Wallet balances the withdrawals for the policy, and Everdraft™ covers the short-term cash flow gaps caused by unexpected costs.

The result of this combination of savings and investments will create less taxation for the younger parent, less stress for them, and the ability to retain long-term value. Life insurance can provide the strength needed in retirement, if used properly.

FAQs About Using Life Insurance for Retirement

Conclusion: Turn Protection Into Possibility

As discussed, life insurance provides more than just protection: it can often be better utilized strategically when you need it.

Beem has created an ecosystem of profitability, income, and budgeting, positioning us at the cutting edge of retirement planning. Through the use of the Beem Tools, retirees can create a Smart Retirement Strategy that leverages the benefits of Life Insurance, as well as Kept Value (the ability to use the cash value of a Life Insurance policy), to secure a retirement with maximum confidence.

Check out Beem for on-point financial insights and recommendations to spend, save, plan and protect your money like an expert. Download the Beem app today!