Author: Lucas Siegel
Are you financially prepared for retirement?
In 2019, CNBC reported that 15% of Americans have no retirement savings and only 10% of people believe they’ll have enough money when it comes time to retire. To help build a retirement fund, some people may consider universal life insurance — but will it be enough and are there better options?
To help inform your decision, we’ve compiled essential information on how universal life insurance helps you save and if it’s your best option to cover retirement expenses.
What is universal life insurance?
Universal life insurance is a type of permanent life insurance that covers you throughout your life and comes with investment features to help you save for retirement. The methods for saving and investing vary by the type of policy you have.
How universal life insurance helps you save for retirement
Universal life insurance helps you save for retirement by splitting your payment into two parts. One part goes to pay your monthly premiums, while the other gets invested to grow throughout your life. The way this occurs depends on the type of universal life insurance policy you have:
- Traditional: To save money through a traditional universal life policy, you need to pay extra money beyond your premiums. This extra money is what gets invested, so your ability to earn depends on your ability to pay extra — making it a less than ideal savings solution.
- Guaranteed: This type of policy is built to guarantee you have lifelong coverage at a fixed rate rather than actually build retirement savings — so it should not be considered a viable savings solution.
- Indexed: Indexed universal life insurance policies are tied to a stock index such as the S&P 500, meaning your savings depends on the performance of the stock market. Due to this uncertainty, you should consider alternative options with more security.
- Variable: This is similar to indexed universal life insurance, except you are more hands-on rather than just tying your investment portfolio to a stock market. This is high-risk, high-reward — so only consider it if you have extensive experience in financial markets.
A better way to cover retirement expenses
Overall, universal life insurance doesn’t quite offer the ability to save for retirement as many would hope. Policies often include confusing terminology and high-risk factors that make it a non-ideal choice for retirement savings unless you’re a high net worth individual.
Instead, you can consider using a life settlement to fund your retirement expenses or even a viatical settlement if you’re eligible. With a life settlement, you can sell your life insurance policy for a lump sum of cash and no longer have to pay monthly premiums. In fact, you may be able to get as much as 60% of the death benefit’s value in cash for you to use as you see fit in your golden years.
Compared to the uncertainty of a universal life policy’s saving aspect, a life settlement provides a clear and secure alternative to help you enjoy retirement to the fullest extent.
