subject: The Qualified Retirement Plan and Life Insurance [print this page] The Qualified Retirement Plan and Life Insurance
A qualified retirement plan is a plan that meets internal revenue codes which allow it to be able to receive certain tax benefits. That means that your retirement plan can allow you to purchase investments or insurance tax free. The money comes out of your salary before taxes and there are no further taxes in the transaction of investments purchased in the plan. Your employer may also contribute to your plan as a benefit to you. One such investment can be in life insurance. Life coverage is a great thing to have, but as a part of a qualified retirement plan, you can get benefits beyond the protection insurance provides.
Any contributions made to your life policy are not only tax free, but tax deductible. You and your employer have the benefit of contributing to your life policy without paying taxes on it. As a part of a qualified retirement plan, your life insurance is one less cost to worry about. Any cost to you comes out before you ever see the money. You are responsible for a lot of things like daily living expenses for your family, planning for the college education of your children, buying medical insurance, etc. A qualified retirement plan takes care of several things for you like your life insurance, retirement, and other investments for the future.
In the event of your early death, a qualified retirement plan provides your family with several options. If your spouse is depending on your retirement fund for the sunset years, the lump sum paid out in life insurance can help make up for the retirement contributions. After your death, contributions will not be made to your plan any more. That lump sum can help your spouse continue to make contributions so that the fund will be helpful in retirement.
Termination sometimes happens right in the middle of all this. It is disrupting to your investments and insurance as well as to your personal life. Life insurance that is a part of a qualified retirement plan can be transferred to you in the case of termination. You can keep the life insurance even if you can't keep the job. You will have to pay applicable taxes and continue to pay the premiums without the help of your employer, but you can still have the coverage. And coverage brings peace of mind to an otherwise very difficult time.
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