LIRPs. Is Life Insurance An Investment Option?

Is Life Insurance An Investment Option

LIRPs. Three of the biggest factors to consider for you as you approach retirement will be how to manage rising medical costs, access to funds especially if you plan to retire before 59 & 1/2 and tax planning.

If you are like most people, you have accumulated the vast majority of your well in the first two of three investment buckets including taxable and tax deferred savings vehicles like investment, brokerage accounts, 401K and IRAs. As part of your retirement strategy, you should consider the third  investment bucket, tax-free accounts. There are a handful of different products and one you may evaluate is a Life Insurance Retirement Plan or LIRPs.

Also, LIRPs can be designed a long term growth for retirement income when you have maxed out individual pension or qualified plans or supplemental savings. A life insurance retirement plan (LIRP) is an accumulation and distribution savings plan that shares many of the same tax-free advantages of the ROTH IRA without many of the restrictions.

Many Americans are now using investment tools like LIRPs as a way to build tax-free income and avoid the impact and risk of rising taxes.

While it is an option, it is one to evaluate carefully and should be used as a part of a broader plan for retirement. You should have a well diversified plan, considering all three of the investment buckets. This includes taxable, tax deferred and tax-free accounts.

Remember, life is a game never won or lost, only played!

LIRPs: What To Know

Under IRS section 7702, create a flexible insurance product which you can customize to reach their savings goals.  A life insurance retirement plan serves as both an insurance policy and an investment vehicle. You are able to withdraw the cash value of the insurance policy and still maintain a death benefit for your dependents. Additionally, you can take loans against the cash value with low-interest rates and favorable tax treatment. When designed correctly, it can offer desirable features, which include.

• No Income Limitations: The IRS has income limitations on Roth IRA participation, LIRPs have no such income limitation. Anyone can participate.
• No Contribution Limits: Those who can participate in a Roth IRA may only contribute $5,500 per year or $6,500 for those over 50 years. With life insurance retirement plans, you can put $2,000 a year into it or $200,000 a year.
• Tax-Free Retirement Income: Withdrawing from LIRPs or loans against the accumulated value in the LIRPs is always tax-free.
• Multiple growth strategies: There are essentially three ways to grow your money in LIRPs. These include a fixed interest option, direct investment in mutual funds, and participating in an index fund. Each of them offer different risks to consider and evaluate.

Flexible Investment Vehicle

This flexible investing vehicle allows you to put in the maximum amount of premium into the policy to purchase the absolute minimum amount of life insurance with the maximum cash value in that policy. The expenses within LIRPs can cost as little as 2% of the annual account balance over the life of the program. And, that’s less than the average annual expenses in the typical 401K.  Remember, you need to be insurable and able to meet premium payments.  LIRPs can be a financial tool that has many pros (and cons) and is using by millions of Americans as a way to add to their retirement strategy. It is a highly competitive industry, with many different options to evaluate. Here is a quick list of the potential benefits.

Provide Safe Investment Alternatives

LIRPs often provide a floor or basement for your investment returns.  These floors or guarantees means that you will not have a loss. Along with the guarantee, you will often give up the big gains during the incredible years of a bull market.  You may never earn less than 2% a year but in the big years of 20%, you may cap out at 10%. LIRPs create a safe investment alternative to manage risk.

Provide Retirement & Replacement Income

LIRPs can be used a tax-free income via withdrawals  or via short-term loans. They offer tax-free income that can supplement your retirement income. In death, LIRPs provides income protection in the form of a tax-free death benefit to your beneficiaries.

Protection For Rising Health Costs & Long Term Care

LIRPs also combat protection against the high cost associated with long-term care. Most LIRPs provide for accelerate death benefits that can be used if you are diagnosed as terminally ill. Also, many LIRPs offer long-term or chronic care riders for additional protection. These provide a cash option for medical costs.

Offer Different Options For Different Objectives

LIRPs can be created using a wide array of different options. As I covered earlier, you can choose to participate in whole life, universal life and variable life. Each have different coverage plans and benefits to carefully evaluate.

Are An Expensive Insurance Option

LIRPs are a tax-free investment options in the form of insurance. While it’s not fair to compare term insurance vs whole life insrance (e.g. the cheapest vs most expensive option) LIRPs can be expensive. It’s important to recognize that these are different offerings.  If you are looking at purely to buy life insurance then LIRPs are not the best option. You may consider term life insurance.  If you are looking at alternatives to your retirement planning then its one to look at. The goal of LIRPs is lowest insurance possible with the majority of the premium going to cash value.

Remember that life is a game never won or lost, only played.