Universal Life Insurance for Retirement

Key Takeaway

Universal life insurance can be a good choice for retirement funds because it can provide you with financial savings via the cash value account on top of a death benefit. Permanent life insurance provides financial flexibility in retirement, with access to accumulated cash value for whatever you need such as income replacement, legacy planning for your loved ones or a charity, or business succession planning. Life insurance has tax advantages over other financial alternatives, which can benefit you in retirement.

Retirement trip due to Universal Life Insurance Savings

Everyone likely wants to live a full life, and make sure they have enough money saved for those golden retirement years. But how do you do this? There are plenty of retirement planning tools available, but one that some may overlook is universal life insurance.

There are plenty of retirement planning tools available, but a good choice could be a universal life insurance policy. Universal life insurance can allow you to accumulate a cash value, providing you with the ability to access your policy’s value before and after retirement–while also including a death benefit for your loved ones. Here, we’ll discuss what you need to know about universal life insurance for retirement. 

What Is Universal Life Insurance?

Universal life insurance is a type of permanent life insurance offering a death benefit and a savings component in the form of accumulated cash value. When you buy this policy, part of your payment goes towards the cash value. This cash value can grow over time and in different ways depending on the type of universal life policy. You can use this money while you are still alive, or it can add to the money that goes to your beneficiary when you pass away (provided the issuing company offers this feature). Cash value is also a feature of whole life insurance.  You can also often borrow against these policy savings subject to policy terms and conditions, which can be a great help when you need extra cash for emergencies or big purchases like a mortgage down payment.

Another advantage of universal life insurance is its flexibility. You can often change your policy as needed, adjusting insurance premiums or benefits based on your personal circumstances. For example, if you find yourself a bit in a financial rut for a couple of months, you may be able to reduce your insurance payments during that period. Once you’re back on your feet or if you start earning more cash, you can often bring your insurance premiums back up or even increase them for additional cash value growth.

How Do Universal Life Insurance Policies Work?

Every time you pay for your universal life insurance premiums, a portion typically goes to the cost of the policy benefits. The remaining part is credited with interest into a cash value account. You can access the policy cash value once it grows to a certain amount, subject to policy terms and conditions. This cash value can help contribute to financial concerns such as retirement savings for senior years.

Types of Universal Life Insurance Policies

We will cover three types of universal life insurance, as it’s important to understand the differences to know which may be the best to aid your retirement planning for when you are a senior.

Guaranteed Universal Life Insurance

Guaranteed universal life insurance (GUL) offers a fixed death benefit that is paid for with premium payments that don’t change over time. With this policy, you typically get to select an age at which the policy ends; the higher the age, the higher the insurance premiums will likely be.

GUL usually doesn’t accumulate a lot of cash value because it is primarily designed for lifelong insurance coverage. Also called a ‘no-lapse’ policy, guaranteed universal life insurance is meant to address an issue with traditional universal life insurance policies that lapse when the account value becomes unable to sustain the expenses and cost of the insurance, forcing the policyholder to pay much larger premiums.

GUL may be a good choice for someone looking to prioritize lifetime insurance coverage and who is comfortable with limited flexibility on premium payments and insurance benefits. A guaranteed insurance policy may not be ideal if you’re looking to grow retirement savings.

Indexed Universal Life Insurance

Indexed universal life insurance (IUL) offers lifelong coverage with the option to adjust death benefits and payments within certain policy limits. When you pay for IUL, part of the money goes toward policy expenses, while the remaining funds the cash value component (which is usually tied to a stock market index). That said, your cash isn’t actually invested in these indexes. Instead, it’s mainly put into bonds–the index simply acts as a barometer to calculate financial gains and losses.

IUL can potentially be an excellent retirement savings vehicle for your personal finance needs, especially because there’s usually a guaranteed minimum return rate on the account value amount. It’s important to note, however, that earnings may be capped regardless of how well the insurance index performs. Plus, if policy charges eat through your personal savings, you may still potentially lose out on any financial returns.

Variable Universal Life Insurance

Variable universal life insurance (VUL) is similar to IUL, but you typically get to take on a more active role in managing your policy–particularly your investments. With VUL, you’ll likely have to choose sub-accounts for your cash value investments. You may also opt for a fixed interest rate option. This can translate into a probability for good financial returns, but only if you’ve invested wisely.

Why Should I Choose Universal Life Insurance for Retirement?

Universal life insurance may be a good choice as a retirement savings plan because it allows you to grow personal savings at a potentially high percentage. The accumulated amount is also tax-advantaged. Within certain policy limits, anything you earn may be income tax-free, which means you get the full value.

Life Insurance Comparison Table

Universal Life Insurance

Whole Life Insurance

Term Life Insurance


Interested in long-term coverage with flexible premiums and the potential to build account cash value

Interested in long-term coverage with fixed guaranteed premiums, potential dividends, and cash value growth.

Interested in coverage for only a set time, at a typically lower price point.





Flexible Premiums & Death Benefit






Not Guaranteed


Cash Value Growth




Loans & Withdrawals




* Guarantees are dependent on the issuing life insurance company and their claims-paying ability.

The value of Universal Life Insurance Policies for Retirement
The value of Universal Life Insurance Policies for Retirement

When Should I Invest in Universal Life Insurance for Retirement?

Many financial advisors suggest that you invest in universal life insurance for retirement several years before you plan to settle down so that your cash value has ample time to grow for when you are a senior. That said, the earlier you get the policy, the more the cash value can accumulate over time.

Possible Benefits of Universal Life Insurance for Retirement

Here are several benefits that universal life insurance can potentially provide you in retirement: 

Income Replacement:
If you pass away during retirement, life insurance can provide a tax-free death benefit to your beneficiaries, possibly helping to replace the income stream you may have provided for them otherwise. 

Estate Planning: Life insurance proceeds can be used to pay estate taxes, helping ensure that your heirs receive more of your estate. This can be especially important if you have significant assets that may be subject to estate taxes. 

Paying Off Debts: Life insurance can be used to help pay off any outstanding debts or mortgages, helping relieve your loved ones of financial burdens after your death. 

Legacy Planning:
Life insurance can create a legacy by providing a lump sum payout to beneficiaries, which can be used to fund charitable donations, set up trusts, or establish scholarships in your name. 

Guaranteed Income: Some types of life insurance, such as universal life or whole life policies, can provide a guaranteed income stream during retirement senior years, supplementing other sources of income like pensions and Social Security. 

Tax Advantages: The death benefit from life insurance is generally tax-free for beneficiaries. Additionally, most types of life insurance policies offer tax-deferred growth on cash value, and withdrawals or loans from the cash value may be tax-free up to the amount of premiums paid. 

Accelerated Benefits: Some life insurance policies offer riders or options at an additional cost that provide benefits for things like long-term care; or a chronic, critical, or terminal illness, which can help cover the costs of care associated with these situations. 

Protection Against Market Volatility: Certain types of life insurance, such as whole life or fixed and indexed universal life, offer cash value accumulation with downside protection, providing a hedge against market volatility and helping preserve wealth for retirement. 

Spousal Protection:
Life insurance can help ensure that your surviving spouse has enough income to maintain their standard of living after your death, especially if they rely on your pension or Social Security benefits. 

Business Succession Planning: If you own a business, life insurance can be used to fund a buy-sell agreement, helping ensure a smooth transition of ownership upon your death and helping provide financial security for your family. 

Flexibility: Universal life insurance has flexible premium options, allowing you to manage a wide variety of policy funding scenarios that may present themselves at retirement.  You may be able to pre-fund with any bonus amounts at retirement, stop funding if you have adequate value in your policy to pay charges, or vary your funding based on how you manage your lifestyle in retirement. 

Overall, life insurance can play a crucial role in retirement planning by helping provide financial protection, tax advantages, and legacy opportunities for you and your loved ones.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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