Retirement Planning

Life Insurance

Life insurance as a tool in your estate plan or your retirement plan may have many distinct advantages, depending on your circumstances. Along with annuities and bonds, we believe life insurance to be one of the most misunderstood tools in the financial world.

In our view, life insurance in retirement should be thought of as an asset, not an expense. When structured properly and used as part of a plan, it can become a conservative growth tool with unique tax advantages that provide living benefits and death benefits.

The tax code specifically carves out special advantages and tax benefits for life insurance. When used appropriately in retirement, or as part of an estate plan, it may be possible to use life insurance to help protect your retirement, and your estate.

The benefits of life insurance must be weighed against the costs and your objectives. We believe that no financial tool is inherently good or bad, but they do have different purposes, benefits, pros and cons. Understanding the purpose, benefits, pros and cons of life insurance as applied to your personal situation is the first step in determining if life insurance can be an appropriate tool for you.


Two Primary Types


In our opinion, term insurance is not a viable retirement or estate planning tool.

Term insurance is typically purchased by younger families. Term insurance may be an option to consider if you’re looking for to obtain the most death benefit protection possible for the lowest available cost. Term insurance is guaranteed to provide death benefit protection only for a certain number of years, so long as you make your premium payments.

Term insurance is an expense; it builds no cash value and after the term period expires the policy is over. Term insurance can provide protection in the event of an unforeseen tragedy. Every young family should consider carrying term insurance to protect the family’s financial security.


We view Permanent Insurance as an asset you own, not an expense you pay. You contribute cash in the form of a regular premium payment. In turn, your policy builds cash value and can earn interest. Your funds are accessible to you via policy loans or distributions.

Policy expenses are deducted from your cash value for the cost of insurance and other administrative costs. There are more expenses in the beginning years of the cash value policies and over time the net cost reduces and cash value builds.

If structured properly and premiums are paid as planned, you can have fully guaranteed permanent solutions with tax advantages and growth potential for your retirement and estate.

Cash value life insurance is a long-term strategy that when used properly, can provide unique tax advantages along with both living and death benefits.


Living Benefits

Permanent life insurance may have many living benefits if the policy is structured correctly.


The IRS allows special tax advantages for cash value life insurance policies that allow for you to receive retirement income on a tax-free basis through policy loans or withdrawals from basis.

The earlier you start your policy, the more potential it has to grow and provide supplemental retirement income.

A big advantage to this strategy is that it can create tax flexibility in retirement. This means you may have an additional bucket of money to withdraw from to manage how much income tax you pay in retirement. Policy loans you receive are not counted in your Modified Adjusted Growth Income, which is used to determine how much you pay in Medicare premiums.

This tax flexibility creates planning opportunities for skilled planners.

Many policies may have a net zero-cost loan option. This means you can borrow money from your cash value at no cost to yourself.

Tax-free policy loans will reduce the policy’s death benefit — and it should also be remembered that withdrawing the policy’s entire cash value will cause the policy to lapse. If the policy lapses because of too many withdrawals, then the loans turn into taxable income.

Having an advisor who is well-versed in the details of these policies is critical when engaging in this type of planning. Most people probably should not attempt to go it alone, if they lack the knowledge of the tax code and policy features, benefits, pros and cons.


The cash value of a permanent policy is typically not counted in calculations for college financial aid. Tax-free policy loans can supplement a 529 college plan and be used to help pay for college expenses. The death benefit of the policy can protect a family in the event of an unforeseen death of a parent.

A permanent life insurance policy can be a supplemental strategy for college planning, if used correctly and the potential protection offered by the death benefit is desirable.


Many current cash value policies provide the ability to access the death benefit while you’re living, if you need long term care or home health care. You no longer have to pass away before the death benefit becomes accessible. It is important to note that there are terms and conditions related to this, but this could be a strategy to help pay for long-term care expenses later in life, depending on the situation.

If used for long-term care purposes, the remaining death benefit will be reduced according to the terms of the policy.


Your premium payments and all interest earned are protected from lawsuits and creditors when inside a cash value policy. This is a unique feature of life insurance and annuities afforded to the insurance industry. Normally, you would need expensive trusts or other legal entities established and maintained to protect your assets from creditors and lawsuits.

The life insurance industry provides this asset protection potential without the need for attorneys and additional legal documents. This feature of life insurance has been a “well-known secret” of the wealthiest people in the world to use for asset protection and efficient transfer of wealth.


Your premium payments can earn interest and are fully protected from market losses in Whole Life policies and Indexed Universal Life policies.

Whole Life insurance can pay dividends which go into your account or can be used to buy ‘paid up additions.’

Indexed Life insurance creates an opportunity to earn interest linked to the positive movement of an external index like the S&P 500. Some policies have a floor of 0 and a cap of around 12%, though specifics depend on the contract and terms. If a policy has a floor of 0, that can mean that even if the market goes down, you will not lose money. And if the policy has a cap of 12%, then you can make up to 12% if the market goes up. For example, if the market goes up 8%, you would make 8%. If the market goes up 15%, you would make 12%. If the market goes down -5%, you would make 0% (no loss). Policies have different terms and conditions which are important to understand before engaging in any strategy.

Oak Harvest does not recommend variable policies because of the risk to principal. Variable life policies place your money in the market and can go down in value. If you are comfortable with the stock market, we believe you should directly invest in the market, and not through a life insurance policy.


Regardless of other potential benefits, we argue that the main purpose for buying a life insurance policy should always be for death benefit protection. While living benefits are an excellent supplemental strategy as part of a more comprehensive retirement and financial plan, the death benefit of the policy provides family security.


Life insurance death benefits are tax-free to the beneficiaries if structured and maintained properly. This can be a beneficial feature if most of your assets are inside an IRA, since withdrawals from an IRA are typically subject to taxation.


Life insurance can potentially be not only income tax-free, but also estate tax-free if structured properly. In order to receive this special status, the life insurance policy must be held outside of the estate, normally in a life insurance trust.

Individuals and families with large estates often use life insurance as a tool to protect family wealth and ensure it passes to the next generation as efficiently as possible. Some of the greatest fortunes in American history were protected, grown and passed down through advanced life insurance and estate planning strategies.

Our team always aim help our clients and their families ensure the legacy they have often spent a lifetime building is preserved through careful and strategic implantation of large life insurance policies, as well as other strategies. Each family situation is unique.

Life insurance is a tool that should be viewed through the lens of, “What am I trying to accomplish?” If you value the death benefit protection and supplemental living benefits, then it may be appropriate as a part of a broader financial plan.

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