Maximize Tax-Free Income and Protect Loved Ones with a LIRP

A Life Insurance Retirement Plan, or LIRP, is a specially designed life insurance policy that does much more than just provide a death benefit. A LIRP is a permanent life insurance plan that simulates many of the tax-free traits of the Roth IRA. A properly funded LIRP can provide large, tax-free, streams of income during the policyholder’s retirement years.

There is no income limit to a LIRP — unlike a Roth IRA, there are no earned income limits. This means high-income individuals can also participate in a LIRP strategy.

In this article, we will take a broader look into how this plan works and see an example of how much tax-free income is possible.

What is a LIRP, or Life Insurance Retirement Plan?

A life insurance retirement plan, commonly referred to simply as a LIRP, is a type of permanent life insurance policy that builds cash value – some call it an overfunded life insurance policy. Unlike most other permanent life insurance policies, though, that are purchased for their death benefit protection, a LIRP is used more for its cash value and retirement income potential. The cash value can be accessed tax-free for the purpose of supplementing your retirement income.

There are two types of permanent life insurance policies that are used for creating a LIRP. These are:

While whole life insurance policies can provide a viable framework for a LIRP, it is universal life insurance that can typically provide the best LIRP platform. Specifically and index universal life insurance policy. One reason for this is because universal life policies are more flexible than whole life insurance.

See this article if you need to a refresher on the types of life policies.

LIRP Pros and Cons

Although LIRPs can offer a source of tax-free retirement income, there are some potential drawbacks to consider as well, depending on your goals for the policy.

Pros Cons
Tax-deferred build-up of the cash value Higher premium than term life insurance
Tax-free retirement income Possible slower growth compared to equities
No annual funding limits May require ongoing contributions
Death benefit for survivors Have a surrender charge in early years
Penalty-free access for long-term care needs Contributions are not tax deductible

The Power of “Tax Preferral”

Life insurance can be a powerful addition to your overall financial plan. But not just for its death benefit – which, by the way, is income tax free to the beneficiaries. 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 the contributions, growth, and / or the distributions.

But if you’ve already “maxed out” your IRA and / or 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 a tax perspective. 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

Other than when held in an IRA (Individual Retirement Account), these investments are generally taxed:

  • Stocks
  • Mutual Funds
  • Real Estate
  • Bonds

When held in certain types of accounts, such as traditional IRAs or qualified plans, tax is deferred on the growth and is paid at the time of withdrawal.

  • Stocks
  • Bonds
  • Mutual funds
  • Deferred annuities are also in the tax-deferred category.

These assets are unique because they grow free of taxation. But unlike tax-deferred investments, the money can also be withdrawn or accessed on a tax-free or tax-preferred basis:

  • Life insurance death benefit
  • Some life insurance cash value withdrawals
  • Life insurance loans
  • Roth IRA distributions
  • Municipal bond interest

Best Insurance Companies that Offer LIRPs

Although many life insurance companies offer permanent policies, there are only certain insurers that offer LIRPs. These include:

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Allianz is currently offering a 15% premium bonus on any interest credits during the first year of the LIRP. They also offer some of the best-guaranteed loan rates during the withdrawal phase of a LIRP.

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Securian Life

This is the carrier who specializes in the child LIRP and will issue policies at a preferred rate on a child. This is a big deal. Ask why.

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See Full Review


AIG offers an Income for Life Rider that is a wonderful benefit and can guarantee the tax-free income for life.

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See Full Review

Lincoln Finacial

We think Lincoln’s IUL WealthAccumulate product is one of the best LIRPs available due to their interest bonus bonus and muiltiplier crediting method. Lincoln has probably the best LIRP on the market as of August 2019.

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Example of Tax-Free Income from a LIRP

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.

Age Year Life insurance premium Life insurance cash surrender Life insurance tax-preferred income Income tax-free death benefit
41 1 $24,000 $6,909 $626,549
42 2 $24,000 $30,787 $650,246
43 3 $24,000 $56,370 $675,641
44 4 $24,000 $83,848 $702,931
45 5 $24,000 $113,356 $732,256
46 6 $24,000 $145,072 $763,762
47 7 $24,000 $179,138 $797,624
48 8 $24,000 $217,902 $834,048
49 9 $24,000 $259,455 $873,261
50 10 $24,000 $305,034 $916,496
51 11 $24,000 $353,889 $963,011
52 12 $24,000 $406,317 $1,013,100
53 13 $24,000 $463,516 $1,067,960
54 14 $24,000 $522,610 $1,127,054
55 15 $24,000 $586,266 $1,190,710
56 16 $631,191 $946,786
57 17 $679,594 $992,208
58 18 $731,766 $1,039,122
59 19 $788,064 $1,087,528
60 20 $848,816 $1,137,413
61 21 $914,411 $1,188,735
62 22 $985,170 $1,261,017
63 23 $1,061,506 $1,261,017
64 24 $1,143,872 $1,337,498
65 25 $1,232,751 $1,418,401
66 26 $1,328,534 $1,503,957
67 27 $1,288,394 $135,114 $1,560,144
68 28 $1,247,485 $135,114 $1,524,382
69 29 $1,205,854 $135,114 $1,486,880
70 30 $1,163,567 $135,114 $1,447,574
71 31 $1,120,729 $135,114 $1,406,426
72 32 $1,077,650 $135,114 $1,343,193
73 33 $1,034,538 $135,114 $1,275,399
74 34 $991,647 $135,114 $1,202,821
75 35 $949,281 $135,114 $1,125,235
76 36 $907,826 $135,114 $1,042,438
77 37 $866,834 $135,114 $1,010,951
78 38 $826,487 $135,114 $980,720
79 39 $786,975 $135,114 $951,971
80 40 $748,511 $135,114 $924,959
81 41 $711,241 $135,114 $899,870
82 42 $675,209 $135,114 $876,784
83 43 $640,561 $135,114 $855,887
84 44 $607,400 $135,114 $837,327
85 45 $575,752 $135,114 $821,167
86 46 $545,567 $135,114 $807,398
87 47 $516,764 $135,114 $795,976
88 48 $489,041 $135,114 $786,630
89 49 $461,744 $135,114 $778,717
90 50 $434,179 $135,114 $771,562
Total premiums paid Total 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.

Total Premiums Paid
Total Tax free Distributions

Are You a Good Candidate for a LIRP?

While LIRPs can offer a long list of benefits, not everyone is a good candidate for one of these plans. But, a LIRP could be a good option for you if:

  • You are looking for a way to supplement future retirement income
  • You have already maxed out your IRA and / or other retirement plan(s)
  • You want to make sure that loved ones are covered, even in the event of the unexpected

How to Set Up Your LIRP

LIRPs can be complicated products. Because of that, working with a life insurance specialist is recommended before you move forward with the purchase of a LIRP. In addition, an independent life insurance professional can go out into the market place 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 in the industry. So, we will match you with a plan, and a premium, that fits with your budget. Contact us to get started with building your tax-free retirement income stream with a LIRP.

Kids can lock in their own LIRP, too. Because life insurance premiums are based in large part on age and health, children can be ideal candidates for LIRPs due to the low cost of insurance and, with so many years to let the policy’s cash value compound, a LIRP can set them up for a lifetime of financial security at an early age.