How can life insurance work as a source of income? In fact, some whole life insurance policies are a valuable way to create a stream of reliable income. Not all policies offer this. Some will prove to be low value. Others, though, can be a fantastic way to generate an income. This can help you meet your financial obligations during retirement, too.

What Is a Cash Value Policy?

Individuals typically have several types of life insurance policies to select from when buying them. The most basic form is a term life policy. It is simplistic in its design. An individual agrees to an amount for a specific length of time. If the individual dies during that time, a single payment occurs to the beneficiary. However, whole life and cash value policies differ.

In these policies, a portion of the premium goes towards an investment. As the value of the investment grows, the more valuable the policy becomes. Over time, the investment value grows significantly. And, it can begin to pay the policyholder at that time. This creates an income stream. Most commonly used in retirement, the value of the policy pays out on a monthly basis. The amount and frequency depends on the details of the policy.

In short, the premiums paid for this policy build value in an account. Once the value grows high enough, the policy will begin paying interest payments to the policyholder. This creates income for you over your lifetime.

Is This Right for You?

Whole life insurance, as well as universal life insurance, can be a good investment. For those who are younger, it is ideal. There is more time for the value of the policy to grow. This type of insurance policy costs more than a term life policy. However, it also has the ability to pay out significantly higher in total. For those who want to have a way to pay for retirement, this could be a good investment to make. The policy also maintains a death benefit. This is an amount paid at the time of the individual’s death to the beneficiary.

A life income from an insurance policy can help to support your needs. It can also help you reduce some of your costs during retirement. Yet, it does cost more now. Finding the right balance is important here. A life insurance policy of any type can help defray important costs at the end of life.