Sometimes used as a supplemental retirement funding source, life insurance may be able to provide you and your loved ones with some additional income and security in your retirement years and even beyond.

Although the most common use of life insurance is to provide a sum of money upon the death of the insured, life insurance can also be used to provide financial security while a policyholder is still alive.

You see, many forms of life insurance accrue interest over time and can be used as investment vehicles.  And like other retirement products, there are many varieties to choose from.

Let’s take a closer look at the different types of life insurance.

Term—Covers policyholders for a fixed period of time and is typically comprised of two types of premiums: level term and annual renewable. Level-term premiums remain constant throughout the life of the policy and can be bought in increments up to 30 years. Premiums that are annual renewable increase as you age. Ordinarily, level premiums are higher than renewable premiums in the early years of the policy and lower in the later years.  

Whole—Combines term insurance with an investment component. A whole life policy has two elements: the mortality charge (the part of your premium that pays for the insurance coverage) and a reserve (the investment component that earns interest). As you age, the portion that goes into the reserve decreases while the portion that pays for the mortality charge increases. 

Universal—Also combines insurance with savings. The savings component, called an accumulation fund, earns interest monthly and is used to pay the mortality charge.
Variable—Uses a mortality charge coupled with a savings vehicle offered by your insurer. The savings vehicle is usually one of several investment portfolios that are structured like mutual funds. On average, most companies offer 10 different portfolios, including stock, bond and money-market funds.
Single Premium—Requires one lump-sum, up-front premium and is often guaranteed to remain paid-up throughout the insured's lifetime.

How does life insurance fit in with other retirement sources?
Even though you may have retirement savings already, life insurance can be a valuable source of additional income. With most life insurance, the policyholder has the ability to cancel the policy and take the cash surrender value to help with retirement. The sum of money an insurance company will pay to the policyholder or annuitant in the event his or her policy is voluntarily terminated before its maturity or the insured event occurs is called the cash surrender value. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies.

A potential source of extra income, life insurance can help guard against the possibility of outliving your retirement savings. It may also give you the ability to help pay for the increased costs of health care needed as you age. In addition to your own needs during retirement, your beneficiaries can also use your life insurance to replace some of the income that you would have earned, pay off debts, or subsidize their own health care needs in the event of your death.

So, as you consider whether or not your savings will last as long as you do, think about the benefits of life insurance. After all, it may be able to provide added income in retirement and additional piece of mind as you approach this exciting time of life. For additional information on life insurance visit: 

http://www.life-line.org/

http://www.aarp.org/money/financial_planning/sessionfive/life_insurance.html