Pre Retirement Life Insurance

One rule of thumb for pre-retirement life insurance is to own a policy that protects both income and assets. Younger people who have few assets, or assets on which debt is owed, purchase life insurance primarily for income protection. A young couple with children, a mortgage, car payments and student loans will typically purchase a term life insurance policy that will cover lost income should one spouse die. Older couples, however, who have property, stocks, bonds, cash and other assets usually purchase life insurance to prevent those assets from having to be sold upon the death of one spouse.

Permanent life insurance is the recommended policy type for pre-retirement life insurance. Because of the death benefit and the cash account that grows tax-deferred, permanent policies not only offer income and asset protection but also an additional way to save money for retirement.

» Get Pre Retirement Life Insurance Quotes Now

Three Types of Permanent Pre-Retirement Life Insurance

Whole Life Insurance for Pre-Retirement Needs

Whole life insurance is the most popular type of permanent life insurance.  Most policy types are easy to understand and do not contain as much investment risk as universal or variable life policies. Investors can choose among several different types of whole life policies. From policies that pay dividends to policies that can be purchased with a single premium, whole life offers a range of options suitable for pre-retirement life insurance policies.

Universal Life Insurance for Pre-Retirement Needs

Universal life is an extremely flexible type of policy. Policy owners have the option of paying their premiums more or less frequently and paying a smaller or greater amount. This is especially helpful for those nearing retirement. More money can be used in higher yielding investments that also grow tax-deferred, such as employer sponsored defined contribution plans or SEP IRAs.

For those age 50 and over, an additional $1000 can be contributed to an IRA based on current tax law. By reducing the amount of premium paid on a universal life policy, a pre-retirement saver can funnel more money into another retirement plan while still having the ability to borrow against the life insurance policy if the need arises.

Variable Life Insurance for Pre-Retirement Needs

Variable life insurance policies are the most volatile of the three. The insurance company invests a portion of the premium in mutual fund-like accounts at the direction of the policy owner. While the death benefit paid to the beneficiary is guaranteed and cannot drop below the established minimum, the investment account can lose money.

If the underlying investments lose value, the value of the account is decreased and less is available for the beneficiary. This type of policy is only recommended for those with experience in the equity markets. However, a variable policy can be a way to play "catch up" with retirement savings. This should only be considered, however, based on a thorough review of all assets and risk tolerance levels.

Term Life for Pre-Retirement Life Insurance

Term life is temporary insurance. Once the term ends, the coverage ends. A simple, straight-forward and inexpensive term policy can be a good choice for those nearing retirement. If the applicant has not previously been insured and is in good health, a term policy will most likely be the most cost-effective type of policy.

A term policy with a death benefit large enough to cover any outstanding debts could be purchased to ensure that all assets remain with the spouse upon the death of the insured. If there is no insurance and the surviving spouse cannot maintain the assets financially, he or she may have to sell them meet day-to-day living expenses.

Term insurance is also a good way to provide a spouse with a death benefit that can be used to purchase an annuity. This can be especially helpful if a couple has not saved a large amount of money for retirement. Under normal circumstances, a death benefit is not subject to income or federal tax. If it's used to purchase a deferred annuity, it can provide growth and asset protection for the life of the surviving spouse. Further, it can provide guaranteed income for life.

Under most circumstances, the only portion of an annuity payout that is taxed is the portion that has increased in value. The balance is considered by the Internal Revenue Service to be simply the return of the premium. This favorable tax status of annuities is one great way to ensure income during retirement.

Pre-Retirement Insurance and Financial Planning

In recent years, it has become more common for insurance agents and companies to offer full-service financial planning and insurance planning advice. While some may see this as having "all of the eggs in one basket", others will find that speaking to one professional who takes a "holistic" approach to finances and insurance provides more help overall.

An insurance agent today is likely to be licensed to sell securities. He or she may also be a Certified Financial Planner. A CFP has a fiduciary responsible to his or her clients. This means that he or she has a legal and ethical responsibility to recommend only products that are appropriate for his or her client. This is different than a regular insurance agent or stockbroker who has only to ensure that his or her client's financial situation is suitable for the product.

This distinction is critical for those nearing retirement. The closer one is to retirement, the more he or she needs to protect assets. As less time is available for growth before the money is needed, it is harder to make up losses. A CFP who also sells insurance will be able to structure an entire financial plan around the assets that have been accumulated, the amount of growth that will be required to offset inflation during retirement and allow for the client to leave money to a child, grandchild or favorite charity if he or she wishes to do so.

To find the best life insurance products request a free, comprehensive quote comparision. Secure your future today, Get Started Now.