It’s beneficial to have a Life Insurance Retirement Plan because it offers the benefit of life insurance plus the security of retirement savings. Note that an LIRP won’t fully replace your IRA or 401(k), instead, it can be used as a supplement to your current retirement planning strategy.
Read through this article, and find out more about the LIRP (Life Insurance Retirement Plan)…
About LIRP (Life Insurance Retirement Plan) | What You Need To Know
A life insurance retirement plan is a permanent life insurance policy, such as universal life insurance, which combines life insurance coverage with a “cash value” component that you can put into retirement money.
LIRPs cannot be term life insurance because term life insurance has no cash value component. Among all the benefits of an LIRP, one major benefit is its tax advantages.
The cash value grows tax-deferred, so you don’t owe taxes on any gains till the day of withdrawal. Moreover, some policy loans & withdrawals can be tax-free as long as they don’t go beyond the amount of money you’ve paid in premiums.
How Does a Life Insurance Retirement Plan Work?
Once you have a LIRP, you pay premiums into a life insurance policy, which builds up cash value within time. The cash value could be withdrawn due to:
- Before age 59½, withdrawals and loans are tax-free when the amount you take out is less than the sum of premiums you have paid—known as the “basis.”
- All withdrawals and loans are tax-free after age 59½.
When you die, the death benefit of the policy is paid out tax-free to your beneficiaries, but the death benefit will be decreased based on the number of withdrawals you took & policy loans that were not paid back.
On the other hand, if your primary goal with a LIRP is to make use of the cash value, you may not pay much attention to the death benefit amount.
Although “overfunded” strategies, LIRPs let you contribute more money than is necessary to maintain the death benefit. Due to the excessive amounts, the policy’s cash value can grow more quickly, which improves the retirement income stream’s ability to be tax-free.
See the next session of this article, and find out more about how LIRP loans work.
How LIRP Loans Work
Loans from life insurance policies are an important benefit of having an LIRP. Even before reaching the age of 59½., you can borrow against the increasing cash value of your policy to enhance your retirement income.
The process of collecting LIRP loans is equally simple:
- Specify how much money you want to pull out after checking your cash value.
- The insurance provider will provide you with the required sum if you ask for a loan from it.
- You can pay back the loan whenever it’s convenient for you because there is no set payback timetable. It’s crucial to manage any debts carefully since one danger is that they could decrease your death benefit.
Pros & Cons of an LIRP (Life Insurance Retirement Plan)
An LIRP is a useful tool for retirement planning, but it’s very vital to consider carefully the cons & pros before making a decision.
|LIRP pros||LIRP cons|
|Tax-free income in retirement||Higher premiums and fees|
|Tax-free death benefit for beneficiaries||Not a standalone retirement solution|
|No contribution limits||Withdrawals and unpaid loans reduce the death benefit|
|No required minimum distributions (RMDs)||Potential for policy lapse if cash value drops below a certain minimum|
|Guaranteed return rates on cash value with some policies||A substantial amount of cash value is needed to generate tax-free income|
With the LIRP cons & pros, you should see the next session below, and find out how much an LIRP costs.
How Much a LIRP(Life Insurance Retirement Plan) Cost
What you’ll settle for an LIRP depends on the following factors:
- Premium: Your premiums will vary on the coverage amount you select, your age, your health, and other specifications. Young and healthy persons often qualify for the least life insurance quotes,
- Fees: Your LIRP will incur expenses, such as administrative fees, expenditure fees, and surrender expenses.
- Riders: Some LIRPs have riders who could improve your policy by adding long-term care or disability income coverage. Usually, adding riders increases the premiums.
- Taxes: If you cancel your insurance or withdraw too much cash, there may be tax repercussions.
Not everyone can apply for a life insurance retirement plan, see the next part of this article, and find out those that are eligible to get a life insurance retirement plan.
Who Needs a Life Insurance Retirement Plan?
If you fall under one of the following circumstances, a life insurance retirement plan could be a good idea:
- Your other retirement funds are at their maximum. An LIRP may allow you to increase your retirement savings if your 401(k) and IRA contribution caps have been reached.
- You are very fortunate. Your policy’s death benefit can be used to pay estate taxes, saving your heirs from having to liquidate assets to pay the tax obligation.
- You should diversify your retirement income holdings. The cash value of an LIRP can be invested in a number of asset classes, including stocks, bonds, and mutual funds, depending on the type of life insurance policy it is.
Companies That Offer LIRP (Life Insurance Retirement Plan)
Any business that provides cash-value life insurance policies will have retirement plans for life insurance.
Compare plans if you’re considering a LIRP to locate the one that best suits your requirements. If you need assistance reducing your selections, speak with an insurance agent.
- Northwestern Mutual
- New York Life
- Ohio National
- Pacific Life
- Penn Mutual