A life insurance retirement plan—or a LIRP—is when you use the cash value of a permanent life insurance policy to supplement your retirement savings. The primary purpose of life insurance is to ensure your loved ones are financially supported once you’re gone, but the cash value of a permanent policy can be used in a variety of ways. This article will explore the benefits of a life insurance retirement plan and if it’s the right option for you.
Is a life insurance retirement plan a good retirement investment?
Life insurance shouldn’t be the primary source of your retirement plan or retirement strategy, but it can be a good investment for some. The value of retirement investments such as 401Ks and Roth IRAs can fluctuate, which can be intimidating for those relying on said accounts come retirement. The cash value of a permanent life insurance policy like whole life insurance can function as a ready reserve of funds if needed. Dipping into the cash value will decrease the death benefit of the policy, but it can be comforting to know the resources are there if needed.
Who needs a life insurance retirement plan?
Life insure retirement plans are beneficial for individuals with complex financial needs or those who need life insurance coverage for their entire lives. This often includes:
- High income earners who have maxed out other retirement accounts and are seeking an additional avenue for tax-deferred savings.
- Individuals with lifelong dependents, such as family members with disabilities.
Many people won’t need life insurance by the time they retire, as many of their financial obligations—mortgage, paying for college, etc.—will likely be paid off or decreasing.
Cost of Investing in a Life Insurance Retirement Plan
To have a life insurance plan that helps support your retirement, it can be beneficial to overfund the cash value of your policy by paying more than the required premium payment each month. The extra money you contribute should go toward the policy’s cash value and grow tax-deferred.
Life Insurance Retirement Plan Benefits
The primary benefit of a life insurance retirement plan is going to be your permanent or whole life insurance policy’s cash value.
- There’s typically no limit to how much you can pay into the cash value of your policy.
- Many permanent life insurance policies guarantee a minimum return of the cash value.
- There’s often no restriction to when you can access your cash value, compared to the implications of withdrawing from a retirement account.
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