Life insurance provides family protection and help members to remain financially secure even in the event of the premature death of the earning person. Parents consider it to ensure the future of their children. Such policies are also relevant in case of estate planning and ensure smooth business operations even in the absence of key member or owner. However, by marketing it as a successful retirement plan the companies may be stretching the truth too far.
To business owners and high-earning professionals insurance providers market life insurance as additional funds for secure retirement. This is an additional investment plan other than the traditional 401(k). Insurance companies tend to offer policies that come with underlying investment options allowing cash value build up over time. Just fund the plan for some years and the related cash value growth finally negates need for additional premium payments.
After retirement, one can withdraw the tax-free corpus in the form of a loan the policyholder does not need to payback. The single consequence as it seems is reduced benefits in the event of the death of the policyholder. This arrangement seems picture perfect on paper! So, what can go wrong?
Problems occur when the said investments do not provide expected results as promised. Also, it may happen that the policyholder loses steam after some time and is unable to keep up with the steep payments related to the insurance policy. Another difficulty arises when large withdrawals in the post retirement phase triggers taxations. These eventualities can mar the otherwise picture perfect retirement investment scenario.
Further investments related to life insurance vehicle are comparatively expensive than regular retirement plans. As such, this option is not for everybody. Ideally, one should consider life insurance as a retirement investment option only when all the other possibilities are exhausted. Those who feel that life insurance is their only or most viable option should compare providers and policies before making the final choices.
Traditional retirement plans including pension plans, cash balances, SEP-IRA, 401(k), and no-load, no cost variable annuity, are hassle free and reliable. Life insurance as a retirement investment is never full proof. Yet for those who want to go for it, thorough research before writing the first premium check is desirable.
