Retirement Planning, Elder Law, and Senior Finance

5/31/2023 | By David Rodeck

Many retirees drop their life insurance once their kids have grown up, but a policy may still make sense, even with empty nests.


There are different types. Life insurance policies all follow the same general approach: You pay a premium and then, if you pass away while covered, your heirs receive the listed death benefit.

Term policies have a set expiration date. You may be able to renew, but the premiums get more expensive. Permanent life insurance doesn’t expire if you keep paying the premiums. Premiums start out higher than for term policies, but many permanent policies charge the same premium the entire time.

Life insurance can build savings. Permanent life insurance can build cash value from your premiums. This is money you could take out while alive, either as a withdrawal or as a loan that can be repaid. The cash value earns a return based on the type of permanent policy.

Tax laws are favorable for growth. If you keep the cash value in your life insurance policy, you delay taxes on your gains. If you withdraw your cash value, you owe income tax on your gains. Alternatively, if you take money out as a loan, you don’t owe income tax. As long as you have an outstanding loan, the insurer charges interest and adds that to your outstanding loan balance. The outstanding loan could reduce your cash value growth because you have less money in the policy, though this depends on the insurer. Taking money out of your policy via withdrawal or loan reduces the death benefit for your heirs.

Investment fees can be high. Fees are a drawback to saving through life insurance cash value, especially on market-based variable products. Not only do you pay for life insurance premiums, but the insurer could also deduct annual fees up to 3% a year for the underlying investments.

You can combine life insurance with long-term care coverage. Some life insurance policies allow you to spend part or all the death benefit on long-term care. Caveat: If you need prolonged care, traditional long-term-care insurance likely would pay out more.

Life insurance policy with pen

It’s a more effective inheritance than other assets. When your heirs inherit pre-tax money in a retirement account, like a 401(k) or traditional IRA, they’ll owe income tax when they take the money out. Most non-spouse heirs must withdraw everything within 10 years of the inheritance.

As an alternative, you can use some of your retirement money to fund a life insurance policy, says Paul LaPiana, head of product for Mass Mutual. “Your heirs receive the death benefit income and capital gains tax-free.”

You need to qualify based on health, but it’s gotten easier. Most policies require you to pass medical underwriting before you can buy. Based on your current health and medical history, the insurer decides if you qualify and at what price. “People who had serious issues in years past, like heart problems or cancer, can still qualify, assuming the conditions are managed the right way,” says LaPiana.

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit

©2023 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

Read more finance and retirement articles on Seniors Guide: Tips to Build Retirement Savings

David Rodeck

David Rodeck is a contributing writer at Kiplinger’s Retirement Report. For more on this and similar money topics, visit