By now, anyone who isn’t on good terms with a rich uncle knows the importance of building a retirement fund. And as we’ve been told countless times by parents, teachers, and experts on TV, having a 401(k) through your job, a well-funded IRA, and whatever we may be able to count on from Social Security will prove to be very important to your financial future.

As the most popular form of life insurance available, term life offers two principle benefits when it comes to retirement.

To begin with, term life offers a guaranteed death benefit. In the event of unexpected and untimely death, it offers financial security during the years you’re raising your family while you’re also saving for retirement. That means your family won’t have to raid your retirement funds to get by. It also means that depending on how far off retirement is, your spouse can potentially continue to save for it. Protection for your family today, and tomorrow.

The second benefit of term life is its low cost. Because you can protect your family’s finances with a

small amount out of pocket each month, you have enough left over to fund your 401(k) or IRA. It

may even leave you with enough money to create an emergency fund, and protect against other

surprise expenses. See how much term life may cost you.

Experts recommend that every family have an emergency fund to cover between three and six months’ worth of expenses. Having this extra money on hand can help keep you from using credit cards should you get hit with a surprise expense, or your income dips. Because avoiding credit card debt – and the heavy interest burden that goes along with them – is one of the best ways to save for retirement and stay on track.

While term life offers lower premiums and the ability to protect your family for a specified period, there are two important reasons why permanent life offers better than average retirement savings. One, of course, is that permanent coverage never expires. As long as the policy remains in force, you’re covered. But even more important is that over time, permanent life insurance builds cash value.

Of course, using permanent life insurance to build assets isn’t for everyone, and experts will tell you to max out other vehicles like an IRA and 401(k) first. But if you’ve done that and still have assets to invest, permanent life insurance is an opportunity to set aside significant assets for a tax-deferred retirement plan. Let’s see how it works:

When you buy a permanent life insurance policy – whether whole life, universal, variable, or a hybrid – some of your premiums go to cover the policy and some goes to a separate account that grows alongside your death benefit. But what makes this strategy most interesting for anyone who’s already contributing the maximum to their retirement accounts is that there’s no contribution limit when using life insurance for retirement planning.

Think about it. For those under age 50, the maximum 401(k) contribution for 20201 is $19,500 and just $6,000 for a traditional IRA. By adding a permanent life insurance to your retirement plan, you increase the amount you can set aside – and grow tax-deferred – to any amount you like. What’s more, unlike a 401(k) or an IRA, there usually are no limits as to how much you can withdraw or when you can withdraw it.

And, your heirs will thank you too. Your beneficiary pays no taxes on the death benefit from a permanent life insurance policy. But a traditional IRA or 401(k) investment options? If you’re not careful, your beneficiary could get hit with a huge tax bill.

While those are the broad outlines of using permanent life insurance for retirement planning, there are key differences in this strategy between whole life and universal life. Let’s see what creating a life insurance retirement plan could mean.

Whole life offers less risk. It’s fair to ask, is whole life a good investment for retirement? Whole life is designed to protect you for your entire life, so it’s much more expensive than term life. But the trade-off is that the policy builds tax-deferred cash value. It’s also a highly conservative option, earning a lower return in interest and dividends by putting the money in more stable investments.

Another important type of permanent coverage is Universal Life, which offers greater flexibility. While a portion of your premiums are still allocated between the policy and a separate cash account, you can select where the money is invested to support your retirement fund. Now, while you’re taking the same risks as you would if you invested directly, this flexibility does offer the potential to accrue significant tax-deferred returns. And once you retire, you can borrow against the cash value, generating additional income.

You can also consider converting your policy into an annuity. Once your whole or universal life policy has accumulated a significant cash value, an annuity can offer tax-free, above average retirement savings. Annuities are contracts with an insurance company. In return for funding the annuity with a large lump sum – in this case the proceeds from your life insurance policy – the company pays you a fixed amount every year for the duration of the contract. With a lifetime annuity, those payments continue until you die, and depending on the terms of the annuity, can continue paying benefits paid to your spouse after your death.

Once you convert a life insurance policy into an annuity, you will lose the death benefit, of course.

But the annuity can offer a retirement income for the rest of your life. And, naturally, not all annuities

are the same. Be sure to compare payouts from different companies, so you find one with the most

generous benefits.

So, while it’s a great idea to have a retirement savings strategy in place, it’s also important to make

sure you’ve explored every possible option. For many people – across a wide range of financial

circumstances – using life insurance for your retirement funds may provide an extra boost to ensure

your long-term success.