5.     Uncorrelated Asset

Life insurance cash values and death benefits are uncorrelated to the typical array of risk-based investments within a retirement portfolio. The cash value never declines in participating whole life policies with all premiums paid by the policy owner, and cash values are not subject to market value adjustment.  Similarly, death benefits are triggered only by death and are not subject to adjustment based on “market” conditions. Participating whole life, properly acquired and actively managed, can be an appropriate asset in the context of a diversified investment portfolio configured to optimize retirement income.

6.     Enhancing QLAC Limits

Qualified life annuity contracts (deferred immediate annuities designed to be held and paid for with qualified plan funds) can be a useful strategy for optimizing retirement income. Unfortunately, those for whom it would be appropriate can’t deploy as much as they might want; QLAC is limited to 25 percent of plan resources of $125,000, whichever is less. “Seasoned” life insurance policies can be exchanged via IRC Section 1035 into non-qualified deferred immediate annuities with no limitations and no immediate income tax.

7.     Legacies For Family/Charity

Most retirees today are concerned about outliving their retirement resources. Yet those same people may have a desire to leave a legacy for children, grandchildren and/or charities. Needless to say, life insurance is an ideal way to fulfill those intentions. Consider having them use a life insurance policy to fund an immediate annuity on the life of the grandchild—the income of which is received on the grandchild’s birthday.

8.     Finally—If None Of These Reasons Resonates And Your Client Wants To “Cash In” Their Policy…

Calculate the advantage of continuing to pay premiums for an ultimate death benefit—and the internal rate of return on those future premiums compared to that future death benefit. Often it will considerably exceed a new investment in a similar fixed-income asset class. At the EthicalEdge, we recently conducted just such a review for a long-time policy owner of Guardian. Purchased in 1985 when the client was 38 and needed maximum protection, the policy owner felt it was no longer needed on the eve of his retirement. We looked at all the options discussed in this article, and he was delighted to learn that the dividend of the participating Guardian policy was now sufficient to completely pay the premium–likely for the rest of his life. Retaining the policy on that basis to his likely average life expectancy would not only provide his children with far in excess of the original $1 million income tax free death benefit, but would represent a long-term tax-free “investment” going forward well in excess of 5 percent. This was significantly more than the current return in the fixed-income asset class portion of his portfolio, and keeping the policy for the ultimate death benefit was going to make a very positive difference to his family.