First Person: Life Insurance as a Retirement Savings Tool

The word "life" in "life insurance" describes the most important reason for buying it. Life insurance from a reputable provider provides a lifetime of financial security. I learned this during 25 years as an employee of Prudential Financial, Inc., one of the world's largest insurance companies. Although I worked in the public relations and marketing department, I gained a lot of knowledge about insurance products and how they can be used as part of a sensible retirement plan.

As the father of a young family, from age 40 until my retirement, I bought as much life insurance as my budget would allow, primarily as weekly pre-tax payroll deductions. Now retired for 20 years, I'm enjoying the benefits of those decisions that were made to prepare for the future.

Life insurance is not the typical investment, with the risk of marketplace ups and downs. The cash value is established at the time of purchase, and doesn't change, although there is sometimes interest added during the years the policy is in effect that increases its value. Life insurance is basically a fund to establish financial help for a family's children if the main breadwinner should die early. However, many types of life insurance can also be an investment vehicle to provide funds when the policyholder survives to old age and is no longer working.

There are two main types of life insurance, the first is "term" insurance. This type does not accumulate any cash value, this is just protection in case of death. The company specifies the payout amount and the premium amount in advance and this type is not really for investment. The other type is know as "permanent" insurance, made up mainly by whole life and universal life policies. These do build cash value over time, in addition to providing a benefit payment in the event of death. Cash can be accessed anytime as loans or withdrawls, usually tax free, from the policy, as these simply reduce the end pay-out benefit.

When the children are grown and financially secure, a long-held insurance policy can be a source of cash for everyday expenses during the sunset years. After the policy has been in effect for 20 or more years, the cash value has grown to be about the same as the face value. The policyholder can withdraw the accumulated cash value in one lump amount. Another choice would be setting up a program to receive regular periodic payments, in the form of an annuity, so that paying everyday bills would be more convenient.

When I retired, sold my home in Philadelphia and moved to Tucson, where there was no winter weather, I had some financial choices to make. We looked at renting an apartment in a senior community or buying a condo or house in an area where there are many retirees.

Another question concerned the money I had received from the sale of my house. One option was to put that money and insurance policy cash value to work as down payment to buy a multiple unit apartment house, which brought additional responsibilities as a landlord, along with cash flow income and long term growth as the value increased.

After long discussions with and promises of support from my spouse and kids, I decided to buy the apartment house, at that time my first. Since then we have formed a family company and own several small buildings throughout Los Angeles. Now I have another source of income, much of it due to the decision I made 40 years ago to buy that valuable life insurance policy.

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