Purchasing vacation homes, visiting grandchildren, traveling abroad, working a rewarding part-time job, or taking up a new hobby are all common goals for new retirees. The problem is most of these things cost money. In addition to your lifelong goals, unexpected medical needs or family crises may become an added expense during retirement. No matter what you choose to do for retirement, you need to be financially prepared.
Typical financial planning is failing most people even when they think they’re doing it right. Conventional retirement plans such as 401ks or IRAs were never meant to replace pension plans, but rather to supplement other retirement savings and income.. If you are seeking financial security in your retirement years, you will likely need to pursue further wealth building strategies in addition to today’s typical retirement plans.
Life insurance retirement plan (LIRP) is a term used to describe a financial approach to supplementing your passive income in retirement with a life insurance policy. Because of its cash value accumulation, a life insurance policy can also be used as a buffer account for temporarily replacing passive income from invested accounts during market volatility in retirement. In this article, we will break down the different types of LIRPs, LIRP pros and cons, and how to decide if LIRP insurance is right for you.
LIRP insurance is a life insurance policy used to build cash value to add supplemental income in your retirement years. Life insurance retirement plans come in the form of either universal or whole life insurance products and can be customized to fit your financial goals. If you are unfamiliar with the different types of LIRP insurance, here is a quick overview of whole life insurance and universal life insurance. See this article for further information on the types of life insurance.
Whole Life Insurance
Whole life insurance is a permanent life insurance product that will last the entire lifetime of the person who is insured and provide an income-tax-free death benefit to the beneficiary(ies) of the policy. Whole life insurance is the only life insurance product available today that develops equity for the policy owner. Participating whole life insurance is a type of whole life insurance that pays dividends when the insurance company generates a profit.
Universal Life Insurance
Indexed universal life and variable universal life insurance are two common types of universal life insurance. When using universal life insurance, the client assumes a lot more of the risk, and the insurance company can change many of the provisions in the contract. Unlike participating whole life policies, universal life insurance policies do not paydividends. Both types of universal life insurance pay for the life insurance component through one-year term insurance. Because of this, universal life insurance is the more expensive type of insurance over a long period of time. These fundamental differences make whole life insurance better for long-term guarantees in LIRP insurance than any type of universal life insurance.
As with many things, life insurance retirement plans come with their own set of pros and cons. Recognizing advantages and disadvantages for LIRPs will give you greater context for making financial decisions.
Pros of LIRP Insurance
Cons of LIRP Insurance
Technically LIRPs are not investments at all since they are a guaranteed insurance product. Life insurance retirement plans can serve a number of purposes from financial peace of mind for families, to supplementary passive income in retirement. Many people can benefit from using life insurance as a part of their retirement planning. People who may recognize the greatest benefits from an LIRP include those who:
We all seek the peace of mind that comes with financial security. Proper planning can make your golden years much more enjoyable. We’d love to talk to you about how a life insurance retirement plan could work for you. Many advisors will pick their ideal financial strategy and ask you to plan around it. At Life Benefits we recognize that no one can predict the future (not even a financial advisor) and believe in tools that provide guarantees and options for your future so you can create the best financial strategy around your unique situation.
If you are interested in learning more, schedule a complimentary strategy session with us.