Do you share two common retirement planning concerns?

  1. What will happen to my loved ones if I die early?
  2. What if I outlive my retirement savings?

Consider a powerful tax strategy to supplement retirement income using life insurance.

Client Profile for this type of retirement strategy:

  • A need for life insurance protection
  • Age 25-60 in good health
  • High income earner (typically $200,000+ annually)
  • Contributing the maximum to qualified retirement plans and have a desire to save more
  • Desire for tax-free supplemental income potential
  • 15 years or more until first planned policy distribution

You are likely familiar with Pension and Profit-Sharing plans as well as Individual Retirement Accounts (IRA’s). The advantage of these plans is that your contributions are tax deductible and the investment growth is tax deferred. The disadvantages are the limitation on the amount of your annual contribution and that distributions from the plan are fully taxable as ordinary income. Due to these limitations, for many individuals, another powerful tax strategy to supplement retirement income is becoming popular.

Enter Life Insurance Retirement Plans, i.e. LIRPS. A LIRP provides you with similar tax advantages of a Roth IRA but with additional benefits.

A LIRP is a Life Insurance Retirement Plan. Typically, we use an Index Universal Life policy. This allows us to capture “market” returns thereby maximizing policy cash values to create as much tax-free income as possible. While your contributions (premiums) to the plan are not tax deductible, your funds grow tax free inside the policy during the accumulation phase and the gains can be withdrawn tax free using policy loans.

Key LIRP Advantages:

  • No maximum contribution limits like a 401k or IRA.
  • Little or no risk of government control or changes to current tax law.
  • You can use Index Universal Life. With Index Universal Life, your policy value and growth are linked to the performance of a specified stock market index such as the S&P 500 Index up to a designated “cap”, typically between 11% – 13%. Conversely, if the stock market performs negatively, the accumulation account is credited 0%. Index Universal Life provides reasonable upside potential with downside “protection”.
  • For conservative clients, funds can be directed to the insurance companies “general account” where it earns 3% – 4% with no market risk.
  • Tax free withdrawals of policy values via low cost policy loans.
  • Tax free death benefit.
  • Long term care and terminal illness riders permit acceleration of death benefit for qualifying conditions.

Insurance Policy “Design”

With most life insurance, we are interested paying the least amount of premium for a designated death benefit. A LIRP design is the opposite. We want to use a “overfunded” design which means we are interested in least amount of death benefit relative to the premium we are paying. This will result in creating the maximum amount of cash values.

While adding to the policy cost, we recommend adding Long Term Care or Chronic Illness Riders and Terminal Illness Riders. These Riders permit you to accelerate the death benefit (generally about 2% of the death benefit per month) for a qualifying condition. For most carriers, a qualifying condition means that you are unable to perform at least two of the six activities of daily living and that the condition is expected to be permanent.

Eligibility varies somewhat by carrier but generally, you qualify if you are unable to perform at least two out of the six activities of daily living and the condition is expected to be permanent.

Daily living activities are defined as:


  • Eating
  • Bathing
  • Dressing
  • Toileting (being able to get on and off the toilet and perform personal hygiene functions)
  • Transferring (being able to get in and out of bed or a chair without assistance)
  • Continence (being able to control bladder and bowel functions)


Closing Thoughts:

A LIRP is the opposite design of a traditional life insurance plan. With a LIRP, we want to pay as much premium as possible relative to the death benefit without causing the policy to become a MEC (a non -insurance defined product). This will maximize cash value growth to take advantage of the tax benefits.