What is a Life Insurance Retirement Plan (LIRP) and Why Do You Need One?

You may already have a life insurance policy that can protect your loved ones. However, there is another type of life insurance policy designed to provide you with a tax-advantaged way to grow your wealth. It’s called a Life Insurance Retirement Plan or (LIRP) and it’s one of the best-kept secrets of high net worth individuals.

What is a LIRP?

A LIRP is a cash whole value life insurance plan that uses its cash component as a retirement funding strategy. With LIRPs, capital gains are not taxed on withdrawals after the age of 59 ½. In many ways, LIPRs function much like a Roth IRA.

How is a LIRP Different From Your Current Life Insurance Policy?

Your current life insurance policy is designed to provide the most amount of benefits after you have died. Sure, you can add a living benefit rider to your existing life insurance policy. However, LIPRs are specifically designed to provide you with income while you are still alive.

Instead of competing against one another, life insurance policies and LIRPs complement each other to provide you with a higher level of wealth growth and preservation.

How do LIRPs work?

A LIRP allows you to allocate a certain percentage of the policy’s premium payment towards a tax-deferred, investment-like fund. After a certain period of time, you will be able to withdraw money from the policy. You also have the option to take out a loan against the policy. This allows you to enjoy a tax-free income in retirement.

What Are the Top Benefits of LIPRs?

There are many benefits that LIRPs offer that are not found in a conventional life insurance policy. Here’s is what LIRPs can do for you:

Provides Protection in Market Downturns

If most or all of your retirement funds are in the stock market, then you will want to be protected in the case of a downturn. LIRPs are an excellent way to diversify away from equities.

You Can “Overload” Your Payments

LIRPs allow you to pay more than your premium. That excess money goes into the policy’s cash value and grows tax-free. You can then withdraw that money at age 59 ½ tax-free.

You Can Add a Long-Term Care Rider

You have the option to add a long-term care rider which provides accelerated benefits if you require nursing home care or some other form of long-term medical care.

It Can Supplement Your Existing Retirement Plans

If you already have a 401K and IRA, a LIRP allows you to create an additional source of retirement income.

You Can Choose Your Level of Instant Liquidity

LIRPs give you amazing flexibility based on your overall wealth planning. For instance, you can borrow against the value of the policy. This will not result in a 1099 and therefore, this withdraw is not taxable at all. Yes, you will have to pay interest on the loan. However, loan terms are extremely favorable for LIRPs.

Learn more about LIRPs

LIRPs are an ideal choice for those who need more tax-sheltered retirement strategies. To learn more about LIRPs, be sure to talk to a wealth planner who can integrate this tax-deferred strategy into your retirement portfolio.