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How Life Insurance Can Provide the Retirement Planning Hack You Didn’t Know You Needed

Try this one helpful strategy for generating tax-free retirement income.

Many people view life insurance as something to only be accessed after their death. But this mindset overlooks the valuable ways that you can use life insurance to build wealth, reduce your taxes, and even generate income in retirement.

Premium financing, in particular, offers a simple path to creating a tax-free retirement for yourself. The process is relatively straightforward as long as your policy is structured correctly: 

  1. When you purchase life insurance, the money you put in can be referred to as a forced savings tool 
  2. You can later withdraw money from that life insurance plan 
  3. The money you withdraw is not taxable, so withdrawals throughout your retirement can serve as a tax-free income stream
  4. Upon your death, the life insurance policy will also reduce the amount of estate taxes your heirs have to pay

‍In this article, we’ll dive deeper into the “how” and “why” behind premium financing, and we’ll compare it to another popular retirement savings strategy to help demonstrate its unique advantages. 

What is Premium Financed Life Insurance?

Premium financed life insurance is life insurance that’s purchased with a third-party loan. This allows the insured to hold a large life insurance policy without needing to pay high premium costs out of pocket. Instead, they use the loan to pay the premiums.

‍In addition to lowering or eliminating your premiums, purchasing premium financed life insurance is the key to creating the tax-free retirement income we discussed earlier in this article. It also allows you to hold onto high-returning assets rather than having to liquidate them to pay for premiums.

Premium Financed Life Insurance vs. 401k Contributions

To help illustrate the unique advantage of investing in premium financed life insurance, let’s compare it to another popular retirement savings strategy: contributing to a 401k or IRA. 

When you put money into a 401k or IRA, you receive an initial tax deduction, and the funds grow tax deferred until you withdraw them. However, you do have to pay taxes upon withdrawal, and if you underestimate the amount you’ll have to pay, you may end up with less retirement savings than you initially expected.‍

Life insurance, on the other hand, does not come with a tax deduction. Instead, the money grows tax deferred, and when you withdraw the funds, you are not required to pay taxes on them. 

In essence, purchasing life insurance means you’ll pay taxes on a smaller amount of money now, whereas contributing to a 401k gives you a tax deduction for the short term but in the end requires you to pay significantly higher taxes in the future. 

Purchasing premium financed life insurance for retirement can add up to savings of 400% on taxes over a 30-year period. Imagine how much your future self will thank you for purchasing a policy today rather than choosing the instant but fleeting gratification of a 401k!

Partner with an Expert to Make Sure Your Interests are Protected

Premium financing offers unique flexibility because there’s room to negotiate the terms of your policy with both the bank and the insurance carrier. However, this also means that it’s easy to find yourself stuck with a policy that does not fit your needs, especially if you’re working with someone who lacks expertise in this area or who isn’t committed to building a custom solution for you. 

For these reasons, it’s incredibly important to find a knowledgeable partner who will work with you to understand your goals, structure your policy accordingly, and work with you long-term to ensure that the policy is continuing to meet your needs and expectations. 

Our team at Goheen Companies currently manages over $1 billion in premium financed life insurance and works closely with each client to build tailored solutions, so when you work with us, you can trust that your future is in expert hands. If you’re interested in learning more about using life insurance to fund your retirement, contact us today to schedule a consultation. 

Post Tags :

Life Insurance, The Simplicity Company, Tips, Wealth Management


Meet Shawn Goheen, the heart and soul behind Goheen Insurance. Since the early ’90s, Shawn has been more than just a financial advisor; he has been a trusted confidant to high-net-worth individuals. His journey has led him to build strong connections with over 15 specialty lenders and insurance carriers, and relationships with 20+ banks, giving him a rare edge in navigating the often-complex financial world with ease and transparency.