For anyone weary of writing checks to pay for life insurance, retirement used to spell relief. With the mortgage paid, the kids on their own, and Medicare and Social Security on the way, common sense suggested you could safely let your insurance expire. But if you’re like many fifty- and sixtysomethings today, you don’t have the flexibility to shorten the life of your life insurance. You could buy another term policy if you’re healthy, but that coverage could still end before your needs disappear. If you want your insurance to last for the rest of your life — no matter how long you live — then signing up for a “permanent,” cash-value insurance policy may make sense. In return, you get tax advantages and savings guarantees — plus a death benefit that never expires.
Permanent life insurance has a couple of strong suits. The first is safety: With the exception of AIG, life insurers survived the credit crisis and the recession in excellent financial condition. The second is falling costs: Competition and longer life expectancies are driving the cost of all life insurance policies down, including for people age 50 and older.
Permanent life insurance also appeals to risk-averse people who don’t have time to recover investment losses in the event of another financial crash. A limited-payment policy — you pay higher premiums for fewer years — is an option that is becoming popular among pre-retirees who want to time the end of their premium obligations with a retirement date. A 10-year payment plan between age 50 and 60 costs perhaps twice as much per year as regular premiums you would pay over your lifetime. But by putting more into the pot early, your cash value also compounds quicker.
Cash-value life insurance can also be a good portfolio diversifier. That’s because a whole life policy is unconnected to the securities markets. You can think of it as the cash or bond allocation in your overall investment mix that allows you to be more aggressive with stocks, commodities or real estate in your IRA, 401(k), or taxable brokerage accounts.
Cash-value insurance is also an alternative to a home-equity line of credit or other sources of borrowed money. A policy loan is instant credit. You can borrow up to your total premiums paid, with no questions asked, by sending a fax or calling the insurance company and requesting a check or wire transfer. Nobody runs a credit check or ties the interest rate to your credit score. And you don’t have to repay the money on any schedule.
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