LIRP Account: Life Insurance Retirement Plan Strategy

The Life Insurance Retirement Plan, commonly known as LIRP, is a financial strategy that has captured the attention of savvy individuals seeking to build a robust, tax-free retirement fund.

It’s more than just a plan; it’s a gateway to financial security and flexibility. In this comprehensive guide, we will take you on a journey through the inner workings of the LIRP and how Insurance Geek properly structures these policies for our clients.

You’ll discover how it operates, who can benefit the most from it, and what key factors you should consider. By the end of this article, you’ll not only be well-informed about a LIRP, but also have the knowledge to make an informed choice about its potential alignment with your retirement aspirations. The path to a tax-advantaged, worry-free retirement begins here.

What is a LIRP?

A Life Insurance Retirement Plan, is a strategic financial approach that harnesses the capabilities of permanent life insurance policies to create a powerful retirement savings tool. It’s not your typical retirement plan but a comprehensive financial strategy that combines life insurance with the advantages of tax-deferred growth and tax-free income during retirement.

A LIRP strategy is designed to provide policyholders with financial security, flexibility, and the potential for substantial wealth accumulation. In essence, a LIRP offers a dual benefit – it safeguards your loved ones with a death benefit while simultaneously serving as a tax-advantaged vehicle to secure your retirement future. It’s a unique and versatile solution that opens doors to a more prosperous and worry-free retirement journey.

Overfunded Life Insurance

Some people also call it an overfunded life insurance policy or 7702 plan, TFRA and others compare it to infinite banking plans.

Unlike most other permanent life insurance policies that are purchased for their death benefit protection, a this type of policy is used more for its cash value accumulation and retirement income potential. The cash value can be accessed income tax-free for the purpose of supplementing your retirement income.

Types of Policies That Can be Used

Permanent life insurance policies offer two primary types that serve as the foundation for a Life Insurance Retirement Plan:

While whole life policies can certainly lay the groundwork for a LIRP, it’s often the flexible nature of universal life insurance, particularly the index universal life insurance policy, that emerges as the preferred choice.

Index universal life policies offer a versatility that makes them the best policy type for a LIRP. It’s the upside potential, liquidity and flexibility of the premium payments that make these policies the best option.

How do Life Insurance Retirement Plans Work?

The Life Insurance Retirement Plan is a financial tool that redefines the way you prepare for retirement. The wealthy have been using these concepts since the Rockefellers. It combines the protective shield of life insurance with the potential for significant wealth accumulation and tax advantages.

Here’s how it works: You make premium payments into your policy, which not only secure a life insurance benefit for your loved ones but also build up the policy’s cash value. The cash value will grow and compound tax-free, meaning your money can grow without the annual tax burdens that traditional investments face. This creates a powerful platform for long-term wealth accumulation.

However, the real magic happens when you retire. You can access your cash value through tax-free withdrawals or interest free loans. Yes, you read it right—tax-free income. The income you receive during your retirement is yours to enjoy without having to report it to the IRS. This feature is an absolute game-changer, providing you with financial flexibility and security.

In essence, a LIRP offers the best of both worlds—a safety net for your family in the form of a death benefit and a tax-advantaged financial vehicle for your retirement. Its flexibility, potential for impressive returns, and unparalleled tax benefits make it the superior choice for securing your financial future. If you’re seeking a retirement solution that combines security, growth, and tax efficiency, a LIRP is your answer. It’s more than a plan; it’s a pathway to a prosperous and worry-free retirement. Contact us today to unlock the full potential of your financial future.”

LIRP Pros and Cons

While Life Insurance Retirement Plans undoubtedly provide a valuable source of tax-free retirement income, it’s essential to be aware of potential drawbacks, particularly concerning your specific policy objectives. The good news is that Insurance Geek is here to help you navigate these challenges and ensure that your policy aligns seamlessly with your financial goals.

Cons

1. Suboptimal Policy Structuring for Cash Value Accumulation:

One significant drawback to be aware of when it comes to LIRPs is the potential for suboptimal policy structuring, which can hinder your cash value accumulation. The effectiveness of a LIRP hinges on the policyholder’s ability to maximize cash value growth. This can be achieved through proper structuring, ensuring that a substantial portion of your premium payments goes toward building your cash value. When a policy is not structured to prioritize cash value, it can lead to slower growth and may limit the benefits you reap during retirement. It’s crucial to work with an experienced advisor who understands the intricacies of policy structuring to maximize your cash value accumulation. Insurance Geek is here to ensure that your LIRP is structured optimally, avoiding this common pitfall.

2. Carrier’s Ability to Maintain Caps and Participation Rates:

Another drawback to consider is the performance of the insurance carrier. The growth potential relies on features like caps and participation rates. Some insurance carriers may struggle to maintain competitive caps and participation rates over time. This can affect the overall performance and benefits of your policy. It’s imperative to choose a reputable carrier with a strong track record of maintaining favorable rates, ensuring your LIRP operates at its full potential. Conduct thorough research and consult with experts to identify carriers known for their reliability in this regard. Insurance Geek has the expertise to help you make an informed carrier selection and ensure that your policy is poised for success.

Pros

A financial strategy that stands head and shoulders above the rest. One of the most compelling features is the absence of downside risk; your wealth remains secure, even in turbulent markets. With the potential for bonuses and multipliers, your policy has the power to outpace major indices like the S&P 500, offering you the opportunity for substantial returns. But that’s just the beginning.

LIRPs bring a wealth of tax benefits to the table, from tax-deferred growth to tax-free retirement income. It’s a strategy that not only builds your financial future but also ensures you keep more of what you earn. With a LIRP plan your dreams of a secure, prosperous retirement are within reach. It’s not just a retirement plan; it’s a pathway to financial freedom. Contact us today to explore how a LIRP can transform your financial outlook and provide you with a brighter future

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Unlocking Tax Benefits: Your Path to Tax-Free Income

When it comes to planning for a financially secure retirement, Life Insurance Retirement Plans (LIRPs) offer a unique set of tax advantages that can’t be ignored. Let’s delve into the intricate world of tax codes and how LIRPs leverage them to provide you with tax-free income during retirement:

1. Tax-Deferred Growth (Internal Revenue Code Section 7702):

  • Under the hood of a LIRP lies the power of tax-deferred growth, operating within the bounds of Internal Revenue Code Section 7702. This means that any interest, dividends, or investment gains generated within the policy remain untouched by annual income taxes. As your cash value accumulates over time, the tax-deferred nature turbocharges the overall value of your policy.

2. Tax-Free Withdrawals (Internal Revenue Code Section 72(e)):

  • One of the crowning achievements of a LIRP is the ability to provide tax-free withdrawals. Governed by Internal Revenue Code Section 72(e), this feature enables you to access the cash value within the policy without incurring any income taxes, provided it’s done correctly. It’s like having a source of income that’s truly yours, free from the clutches of the taxman.

3. Tax-Free Death Benefit (Internal Revenue Code Section 101(a)):

  • In the unfortunate event of the policyholder’s passing, Internal Revenue Code Section 101(a) comes into play, ensuring that the death benefit paid to beneficiaries is entirely tax-free. This means your loved ones receive the full financial protection provided by the life insurance component of the LIRP, without any tax-related concerns.

The tax benefits offered by this policy, through these three integral tax codes, create a financial environment that is not only efficient but also remarkably advantageous. It’s essential to remember that tax laws can be intricate and subject to change, making the guidance of a financial expert or tax professional invaluable. Let us help you understand and leverage the tax benefits of a LIRP to pave the way for a prosperous and tax-free retirement. Contact us to unlock the full potential of your financial future today.

The Power of “Tax Preferral”

Cash value life insurance can be a powerful addition to your overall financial planning. But not just for its death benefit – which, by the way, passes to beneficiaries income tax free. Life insurance policies can provide additional advantages, such as:

  • Tax-deferred growth
  • Tax-free income
  • Other qualifying non-taxable distributions

This is what’s known as the power of “tax preferral.”

In today’s market, you have many options available for saving for retirement. Some of these may provide tax advantages on contributions, growth, and distributions.

But if you’ve already “maxed out” your IRA and other retirement plan contributions, you may be seeking additional tax-advantaged vehicles. That’s where life insurance comes in. By adding permanent life insurance, you can diversify your portfolio from tax consequences. Life insurance can also provide you with flexibility and preferential tax treatment both now and in the future.

Most people don’t think of funding retirement with a life insurance policy. But it can have its place.

Taxation of Assets Now and Later

Best LIRP Insurance Companies of 2023

While many insurers provide Life Insurance Retirement Plan (LIRP) policies, a select few rise above the rest as the standout choices for the best LIRP insurance companies. These distinguished providers include:

Allianz – No other company can compete!

Allianz is the best IUL insurance company, and it’s not even close. Here’s why they are the King of IULs.

  • Index Rate Lock
  • 40% interest bonus option with only a 1% asset charge
  • 15% interest bonus option with no asset charge
  • Highest Participation Rates
  • Multiple Uncapped Index Options

Rate lock is the most potent cash-value life insurance feature ever created, and no one offers it in the life insurance industry but Allianz. They also provide some of the best contractually guaranteed loan rates during the withdrawal phase of a LIRP.

No carrier has maintained its caps, participation rates, and bonuses like Allianz.

See Full Review

Nationwide

Nationwide® IUL Accumulator II was recently revamped in 2023 and now stands out as one of the best LIRP insurance companies as of Sept 2023. Nationwide New Heights Indexed Universal Life 2020 (New Heights IUL) continues to be a popular product with its low-cost design, strong uncapped participation rates and industry-leading guaranteed minimum participation rates.

See Full Review

North American

North American released their Builder Plus IUL 3 in May of 2021. This product is designed for death benefit protection and its long-term solid cash value accumulation potential.

This life insurance retirement plan offers long-term solid cash value accumulation potential through multiple interest bonus opportunities.

They also provide Accelerated Death Benefit Endorsements for critical, chronic, and terminal illnesses. Not many carriers offer the critical illness riser on their LIRPs.

Example LIRP Income Projection

Jim, who’s 40, is looking to save additional money for retirement. He purchases an Indexed Universal Life policy and pays $24,000 for 15 years, while he’s still working. The cash value grows tax-deferred for 26 years. If Jim retires at age 67 and chooses to start taking income a year later, he can potentially withdraw $135,114 a year for 23 years on a tax-free basis from the policy’s cash value. And he still has a death benefit in place to protect his family, should he die prematurely.

AgeYearLife insurance premiumLife insurance cash surrenderLife insurance tax-preferred incomeIncome tax-free death benefit
411$24,000$6,909$626,549
422$24,000$30,787$650,246
433$24,000$56,370$675,641
444$24,000$83,848$702,931
455$24,000$113,356$732,256
466$24,000$145,072$763,762
477$24,000$179,138$797,624
488$24,000$217,902$834,048
499$24,000$259,455$873,261
5010$24,000$305,034$916,496
5111$24,000$353,889$963,011
5212$24,000$406,317$1,013,100
5313$24,000$463,516$1,067,960
5414$24,000$522,610$1,127,054
5515$24,000$586,266$1,190,710
5616$631,191$946,786
5717$679,594$992,208
5818$731,766$1,039,122
5919$788,064$1,087,528
6020$848,816$1,137,413
6121$914,411$1,188,735
6222$985,170$1,261,017
6323$1,061,506$1,261,017
6424$1,143,872$1,337,498
6525$1,232,751$1,418,401
6626$1,328,534$1,503,957
6727$1,288,394$135,114$1,560,144
6828$1,247,485$135,114$1,524,382
6929$1,205,854$135,114$1,486,880
7030$1,163,567$135,114$1,447,574
7131$1,120,729$135,114$1,406,426
7232$1,077,650$135,114$1,343,193
7333$1,034,538$135,114$1,275,399
7434$991,647$135,114$1,202,821
7535$949,281$135,114$1,125,235
7636$907,826$135,114$1,042,438
7737$866,834$135,114$1,010,951
7838$826,487$135,114$980,720
7939$786,975$135,114$951,971
8040$748,511$135,114$924,959
8141$711,241$135,114$899,870
8242$675,209$135,114$876,784
8343$640,561$135,114$855,887
8444$607,400$135,114$837,327
8545$575,752$135,114$821,167
8646$545,567$135,114$807,398
8747$516,764$135,114$795,976
8848$489,041$135,114$786,630
8949$461,744$135,114$778,717
9050$434,179$135,114$771,562
Total premiums paidTotal tax-preferred income
$360,000$1,891,596

In this example, Jim contributed $24,000 per year in premium for fifteen years, for a total amount of paid-in premium of $360,000.

But starting at his age 67, Jim was able to access more than $135,000 per year – for the next 23 years – for a total tax-preferred income of nearly $1.9 million. At the same time, Jim’s loved ones were covered by a death benefit that, even after all of the income he accessed, was more than $770,000 when Jim turned age 90.

The LIRP provided Jim and his family with a long-term, tax-free income stream. And, because life insurance policies are considered to be “self-completing” plans, his survivors continued to have a death benefit “safety net”…just in case. See more life insurance retirement plan examples here.

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Total Premiums Paid
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Total Tax free Distributions

Are You a Good Candidate for a LIRP?

Although LIRPs come with an extensive list of advantages, they may not be the perfect fit for everyone. However, you might find a LIRP to be a favorable choice if:

  • You seek to enhance your future retirement income.
  • Your IRA and/or other retirement plans have reached their contribution limits.
  • Ensuring that your loved ones are financially protected, even in unforeseen circumstances, is a top priority.
  • You wish to pass on your wealth to the next generation, creating a lasting financial legacy.
  • You aim to grow your wealth in a tax-advantaged manner, capitalizing on the unique tax benefits that LIRPs offer.

At Insurance Geek, we can help you determine whether a LIRP aligns with your unique financial circumstances and goals.

Is LIRP better than 401k?

One question we get asked a lot is “should I put my money in a 401K or a LIRP?” One recommendation we have is if your company matches your 401k retirement accounts contributions then never pass that up free money. But if were our money we would never choose a 401k over a LIRP.

Here’s why.

  • You can lose money in a 401k. Ask anyone who wanted to retire in 2022.
  • Your 401k income is taxed when you start withdrawing money.
  • You can’t get your money out of your 401k without penalty before age 59 1/2.
  • You have max contribution limits to a 401k.

In a LIRP you get these benefits:

  • Won’t ever lose money.
  • Access your retirement savings with tax free distributions.
  • Access money in early retirement before age 59 1/2 without penalty.
  • You don’t have contribution limits which can especially help high income earners,

If you’d like to have a conversation and need help deciding between the two our financial advisors can help with a comparison illustration.

How to Set Up a Policy

A LIRP investment can be a complicated product without an expert to explain the fundamentals. You have to make sure you have a life insurance agent who knows how to design a properly structured policy to maximize cash value growth. Working with a retirement planning specialist like us is recommended before you move forward with the purchase of a policy.

An independent life insurance professional can go out into the marketplace and find the plan that works best for you and your specific goals.

At Insurance Geek, we are affiliated with more than 30 of the top-rated life insurers. So, we will match you with a plan and a premium that fits your budget. Contact us to get started with building your tax-free retirement income stream with a LIRP.