When you think of life insurance, you probably picture it as a payout your loved ones receive after you’re gone. But certain types of life insurance, namely permanent policies with a cash value component, can also serve a powerful role during your lifetime.

One of the most overlooked benefits? Liquidity is the ability to access cash when you need it, without having to sell investments or take on debt. In retirement, that flexibility can make all the difference.

Why Liquidity Matters in Retirement

Liquidity is about having funds readily available when unexpected needs or opportunities arise. In retirement, that might mean:

• Covering sudden medical expenses.
• Helping a family member in need.
• Making a large home repair or renovation.
• Taking advantage of an investment or travel opportunity without disrupting your main income streams.

Without liquidity, you might be forced to sell investments in a down market, withdraw from tax-deferred accounts earlier than planned, or take on unwanted debt.

How Life Insurance Can Provide Liquidity

Certain permanent life insurance policies such as whole life, universal life, indexed universal life, and variable life, build cash value over time. That cash value is more than just a line item on your policy statement—it’s an asset you can access while you’re alive.

Ways to Use It:

• Policy Loans: Borrow against your cash value without triggering a taxable event, as long as the policy stays in force.
• Withdrawals: Take out part of your cash value to cover a need or opportunity (though withdrawals may reduce your death benefit).
• Emergency Reserve: Keep your policy’s cash value as a “last resort” safety net that doesn’t depend on market performance.

Benefits of Liquidity Through Life Insurance

• Tax Advantages: Loans taken against cash value are generally not taxable.
• Market Protection: You’re not forced to sell investments during a downturn to free up cash.
• Flexibility: You decide when and how to use the funds. There are no required distributions like with some retirement accounts.
• Dual Purpose: You still retain the death benefit for your loved ones, even while accessing cash value during your life.

A Practical Retirement Example

Imagine you need $20,000 for a new roof. If you take it from your IRA, you could owe taxes, and if you sell stocks, you might have to lock in losses during a market dip. But with cash value in your life insurance policy, you can borrow or withdraw the funds without derailing your retirement income strategy.

Life Insurance Liquidity + Annuity Income = A Balanced Plan

Annuities can provide dependable income for life, but most lock up your principal, limiting your liquidity. Pairing an annuity with a life insurance policy that has cash value can give you the best of both worlds: steady income plus an accessible pool of funds for when life happens.

In retirement, liquidity is a safeguard against the unexpected. A well-structured life insurance policy with cash value can provide that safeguard, offering you the flexibility to adapt while keeping your long-term plan intact. A financial advisor can help you explore how this strategy could complement your retirement income plan, especially when paired with the stability of certain annuities.