Whole life insurance policies to the rescue of retirees

Sep 18 2009

Nearly 45 percent of households are "at risk" of not having enough to maintain their living standards in retirement, according to the National Retirement Risk Index, a special project of the Center for Retirement Research at Boston College. The index goes on to say, "explicitly including health care in the Index drives up the share of households 'at risk' to 61 percent." But some retirees have discovered a source of supplemental income that can help tide them over during rough patches: their whole life insurance policies.

Many retirees and pre-retirees are counting, if necessary, on tapping the cash value of their whole life insurance policies -- without tax or penalty -- to see them through in a pinch. Their policies' cash values, which are guaranteed to grow, also can offer protection against the erosion of income caused by rising inflation, declining interest rates, and higher income tax rates.

"My whole life policy has always been the best value for the buck," said Jack Leon, 79, a lawyer in San Antonio, TX who purchased coverage from Massachusetts Mutual Life Insurance Co. (MassMutual) to provide a death benefit to his loved ones. "I've always known that the cash value of my whole life policy would grow, in good times and in bad. And I've always known that cash is there if I need it in an emergency."

Dave Janca, 48, a software company owner from Orchard Park, NY agrees. He purchased whole life insurance from MassMutual because of the permanent death benefit for his family, and is comforted by the cash value that is building up in his policy.

"It's nice to know that you have the ability to access the cash as you grow older," said Janca. "Your investments may fluctuate with the markets. But the value of whole life is predictable, it grows, and it's there if you need it. To me, it's not just insurance. It's another planning vehicle."

Financial professionals say whole life insurance is particularly well-suited for supplemental retirement planning as it creates flexibility that enables policyholders to address their needs and circumstances as they change over time.

"A policy's cash value enable you to ride out the unexpected, which is inevitable, particularly as we age," said financial advisor Jason Jones, CLU, ChFC, CFP, Capstone Financial Partners, a general agency of MassMutual. "Over the years, my clients have tapped their whole life policies to pay for lots of different needs -- medical care and elder care, to help a grandchild with college tuition, and to pay for emergency home repairs, among other things."

"Moreover, whole life insurance can help preserve the value of retirement accounts in a down market," said Jones. "Instead of drawing on or selling off distressed investments for supplemental retirement income, the policyholder can draw on the policy's cash value, leaving the retirement accounts to recover their value over time."

"Guarantees are one of the many great aspects of whole life insurance," said Tara Reynolds, corporate vice president, U.S. Insurance Group, MassMutual. "The death benefit is guaranteed; the premiums are guaranteed, and growth of the cash value is guaranteed. It's a piece of your financial plan that you don't have to worry about."

While a whole life policy's cash value can be an effective way to supplement retirement income, it is not recommended to access the cash in the policy for non-emergency needs or desires, such as consumable goods or vacations. It also is not advisable to tap the policy's cash value when the policyholder's top priority is preserving the death benefit, such as when wealth transfer or estate taxes are more important to the overall strategic financial plan.

As part of the company's commitment to bringing national attention to the importance of planning and saving for retirement, MassMutual is the exclusive national underwriter of Retirement Revolution: The New Reality(R), a nationally broadcast special on PBS that premiered this week. The program features deeply personal stories, new glimmers of hope and dramatic changes people are making to help achieve their definition of a successful retirement. The New Reality is the second installment of the Retirement Revolution(R) series, which debuted last spring.