How to Use Life Insurance for Retirement

Essentially there are two types of life insurance: term and cash value. Cash value life insurance takes on various forms such as whole life, universal life, variable life and variable universal life policies. Cash value life insurance can also be paid out to beneficiaries upon the death of the insured. Some individuals elect to take out a cash value life insurance policy particularly if they have already contributed the maximum allowed amount to their retirement plan.

Pay off debt at the time of retirement with cash value life insurance to reduce the amount of bills that need to be paid each month.

Withdraw a small portion of the cash value life insurance each month and use it to help pay bills during retirement.

Take out a loan against the value of the cash value life insurance policy to pay off other bills or to use to pay living expenses.


  • For best coverage, have both cash value and term life insurance policies.


  • Pulling money out of the cash value life insurance policy reduces the death benefit and if done excessively will result in the end of the policy. There are risks involved in taking out a loan against a cash value life insurance policy. For instance, there could be penalties if the cash value policy lapses while there is an outstanding loan. Term life insurance is only paid upon the death of the insured, therefore cash value life insurance is the only type of life insurance that can be used for retirement savings. The payment of premiums is not tax deductible, but capital gains taxes are not paid on cash value life insurance until the money is withdrawn.