Once the kids move out and the house is paid off, it may seem like you don’t really have a need for life insurance anymore — after all, some of the main things you would want a death benefit for are now behind you (phew!). But as you approach retirement, life insurance — specifically permanent life insurance — can be all the more critical to your financial plan.

With its guaranteed death benefit that won’t expire and tax-advantaged cash value that you can access at any time for any reason, permanent life insurance can help you with a number of major financial goals in retirement. Here’s how to use permanent life insurance in retirement.

PERMANENT LIFE INSURANCE CAN HELP YOU WEATHER DOWN MARKETS IN RETIREMENT

Market-based investments are an important part of a retirement plan because they help you grow your wealth and can protect you from inflation. If prices rise, typically your investments will also increase in value. But market declines are also a reality of investing. If you’re forced to sell investments to continue to create income when the market falls, you may end up taking a larger chunk out of your retirement nest egg than you want.

That’s where permanent life insurance can play a major role in your plan. With whole life insurance (one of the types of permanent life insurance), your cash value is guaranteed never to go down. Since it’s not tied to the market, it can be a great way to avoid selling market-based investments when the markets fall. You could either take cash value out of your policy (which will permanently reduce the death benefit) or simply borrow against it (which will temporarily reduce the death benefit until you pay back the loan once your investments regain value).

PERMANENT LIFE INSURANCE CAN HELP YOU BE TAX EFFICIENT IN RETIREMENT

Because of our graduated tax system, the more you earn in a given year, the larger the percentage of your additional earnings you will have to send to the IRS. When you withdraw from your traditional 401(k) or IRA in retirement, you’ll owe income tax. Let’s say you have higher-than-expected costs in a given year in retirement — say you have an expense you didn’t anticipate — and you have to withdraw more from those accounts to cover them. The larger withdrawals may inadvertently send you into a higher tax bracket. And when that happens, you’ll have to withdraw more money to get to the same amount because you need to cover the increased tax liability.

For that reason, it’s helpful to have a mix of taxable and non-taxable sources that you can pull from in retirement. With permanent life insurance, you can withdraw the basis that you pay into the policy tax-free. After that, you can borrow against your cash value without owing any tax as long as the policy stays in place. That means in any given year, if you need to withdraw more than you expected, you can use your life insurance cash value to avoid crossing into a higher tax bracket.

PERMANENT LIFE INSURANCE CAN HELP YOU CREATE GUARANTEED INCOME IN RETIREMENT

If you want guaranteed income in retirement and don’t have a need for your life insurance anymore, you can do something known as a 1035 exchange for an annuity. A 1035 exchange allows you to trade one insurance policy for another without owing tax at the time you make the exchange. Say you have $200,000 in cash value. You could exchange some or all of that value for an annuity that will send you regular payments for as long as you live.

PERMANENT LIFE INSURANCE CAN HELP EASE CONCERNS OVER SPENDING DOWN YOUR OTHER ASSETS IN RETIREMENT

Perhaps you want to leave something behind for your family. Or maybe you’re in a position where you need to fund care as your spouse’s health deteriorates. When you’re concerned about spending down your assets, you can find yourself making difficult choices. Permanent life insurance can free you to spend down your assets on what’s most important to you while you’re alive — the death benefit can replenish assets for your spouse to generate income, fund your legacy or both.

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