What is a Life Insurance Retirement Plan?

If you are considering a life insurance retirement plan or (LIRP) here is more information you might find helpful.

The sooner you plan for retirement, the better. It’s a big transition in life, to go from working full-time, to retiring. It can also be a stressful time if you aren’t prepared. A life insurance retirement plan can help with some of the stress of transitioning and help provide financial stability as you adjust for your new income. In addition to your 401(k) plan, pension, and/or IRA, you can use a permanent life insurance policy to support retirement.

A life insurance retirement plan is a type of permanent life insurance policy that has a cash value component that can be used to contribute financially during retirement.

How do you use an LIRP during retirement?

Many retirees live on a tight, fixed income. This is especially true if your company does not provide a pension and you weren’t able to invest a lot in your 401(k) in your early career. With a permanent life insurance policy, you can use the cash value of your policy to supplement your retirement income and offset any taxable income. LIRP investments you make are subject to capital gains tax.

How do LIRPs compare to other retirement plans?

You should not consider your LIRP a replacement for a traditional retirement fund like a 401(k) or IRA. These types of retirement accounts are the best option for building your retirement. You won’t get the same investment opportunities as these other types of retirement plans. Consider an LIRP as an added benefit to your life insurance policy. In addition to the death benefit that would be paid to your beneficiaries, you can also use the cash value to supplement your retirement income.

What are the benefits of an LIRP?

There are many benefits to having an LIRP including:

• You have a guaranteed death benefit for your beneficiaries
• There is no contribution limit. Some 401(k)s and IRAs have contribution limits
• Unlike 401(k)s and other retirement accounts, there is no penalty for accessing or borrowing against your cash value
• There is a guaranteed minimum
• You receive tax-deferred cash value
• Long-term care rider options

What are the drawbacks to an LIRP?

There are some drawbacks to an LIRP as well, including:

• You can expect to pay 10x more than term life insurance on premiums
• You will receive lower investment returns than you would with a traditional retirement plan
• There may be a withdrawal fee if you haven’t had your policy long enough
• There aren’t tax-deductible contributions
• If you take a loan against your policy, you will be expected to pay interest. If you don’t pay it back before you pass, the amount will come out of your death benefit.

Who is the ideal candidate for an LIRP?

An LIRP isn’t right for many people who would find better benefits from traditional retirement plans. There are certain, specific circumstances in which an LIRP makes sense:

• You are a high-income earner who has maxed out their 401(k) or IRA contributions.
• You have a complex estate and want the death benefit to cover estate taxes
• You have a special needs child or dependent that will require care after you pass

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