A life insurance retirement plan, or LIRP, is a powerful financial tool that offers many tax-free advantages when properly structured.
“Not only are distributions tax-free, but they don’t count toward the income thresholds that trigger taxation of Social Security.”
Millions of Americans have discovered the benefits of using Life Insurance Retirement Plans to protect and secure their financial future. This article seeks to explain what LIRPs are and why they are the favored vehicle for cash accumulation of retirement savings for so many.
A properly funded LIRP provides tax-free income during retirement – and also leaves a death benefit for your heirs upon your passing.
Permanent life insurance policies – such as the Index Universal Life Insurance (IUL) and Whole Life Insurance plans – are used to get the benefits of a LIRP. These life policies build up cash value as life insurance premiums are paid in – and this cash value may be taken out as a tax-free income stream.
The cash value of life insurance policies can gain interest in several ways. It can track an index like the S&P 500 in an IUL. However, your money won’t actually participate in the stock market, which gives you downside market protection – but you get all the upside index potential.
An IUL is a cash value life insurance product that pays an interest rate based on the return of a particular index over a period (typically one year). The insurance company determines the interest rate each year based on the movement in an index (usually a stock or bond index). This provides the opportunity for substantially higher interest paid on the cash versus traditional fixed-interest insurance products while also protecting the policyholder’s cash from loss during bad economic times.
Permanent life insurance policies have many advantages compared to other retirement options. There are no annual income contribution limits, no 10% penalty if you get your money out before the age 59 1/2 as other traditional retirement savings vehicles do, and they eliminate market risk but still allow for upside market potential.
Universal life insurance combines many of the advantages of permanent, whole life insurance policies with premium payments that can be more affordable, making it an option to consider for many people. Like a whole life policy, universal life provides permanent death benefit protection coupled with a cash value component that grows tax-advantaged.
Cash-value life insurance policies designed for retirement income are not new concepts, but they do require a commitment to funding the premium in order for the cash-value to be distributed. Make no mistake – there is no cheap way to pay for an adequate retirement. But, there is a better way.