.png)
Are you looking for a way to supplement your retirement income while providing protection for your family? A Life Insurance Retirement Plan (LIRP) might be the answer. A LIRP uses a permanent life insurance policy to build cash value you can access tax-free, giving you both financial security and a source of retirement funds.
BetterWealth helps you evaluate whether a LIRP matches your goals and timeline. We focus on clear design, proper funding, and simple rules to keep access efficient. The aim is intentional growth with protection you can count on.
In this guide, you’ll learn how LIRPs work, the policy types, and the pros and cons to weigh. We’ll compare LIRPs with 401(k)s and IRAs, show setup steps, and cover upkeep. You’ll also see what a LIRP is for and common myths, so you can decide with confidence.
A life insurance retirement plan combines life insurance protection with a way to build cash value that you can use in retirement. It offers benefits like tax advantages and flexibility that may work alongside your traditional retirement accounts.
A Life Insurance Retirement Plan (LIRP) is a type of permanent life insurance policy designed to build cash value over time. Unlike term insurance, it does not expire after a set period. This cash value grows tax-deferred and can be accessed during your retirement.
You still have a death benefit that provides financial security to your loved ones. The plan is meant to supplement retirement income, not fully replace accounts like a 401(k) or IRA.
Traditional retirement accounts, such as IRAs and 401(k)s, rely on contributions and have strict rules on withdrawals. With a LIRP, your cash value grows differently because it’s tied to a life insurance policy.
Withdrawals and loans against the cash value can often be taken tax-free, unlike regular retirement accounts, which usually charge taxes on distributions. You also avoid required minimum distributions (RMDs) with a LIRP.
Overfunded whole life policies within LIRP strategies can be customized to fit your goals, helping build intentional wealth while protecting your family.
A life insurance retirement plan combines life insurance protection with savings growth that you can use in retirement. It uses a special type of permanent policy that builds cash value over time and lets you access that money tax-free under certain conditions. This setup requires steady premium payments and gives you both financial security and supplemental income potential.
Your life insurance retirement plan is based on a permanent life insurance policy, usually whole life or indexed universal life. Unlike term insurance, these policies do not expire after a set period. Instead, they offer lifelong coverage as long as premiums are paid.
The key feature is a cash value account inside the policy. Part of your premium goes toward insurance protection, and part goes into this cash value. This money grows over time, based on interest or market indexes tied to your policy type.
You’ll make regular premiums to keep the policy active and growing. With a life insurance retirement plan, you can often choose how much you want to pay, especially if you use an overfunded whole life policy. Paying more than the minimum premium helps the cash value build faster.
This extra funding can cover the cost of insurance later on, reducing your out-of-pocket expenses as you get older. You should plan to pay premiums consistently for several years. Stopping payments early can reduce your cash value and risk losing coverage.
The cash value grows tax-deferred inside your policy, which means you do not pay taxes on the earnings as they build. Over time, this can become a sizable pool of money. You can access this cash value through loans or withdrawals during retirement.
These distributions can be tax-free if done properly, unlike traditional retirement accounts that may trigger taxes on withdrawals. The cash value can also serve as a backup source of income or emergency funds. It helps supplement your retirement income without tapping into taxable accounts.
When using life insurance to help fund retirement, you need to understand the specific types of policies involved. Each offers different ways to build cash value, protection, and flexibility. It’s important to know how the cash value grows, your costs, and your control over the investments.
Whole life insurance provides a fixed death benefit and a cash value component that grows at a guaranteed rate. You pay consistent premiums throughout your life. The cash value grows slowly and steadily, making it a conservative option for retirement savings.
You can access the cash value through loans or withdrawals, which are typically tax-free if managed properly. Whole life also offers stability and predictable growth, which may appeal to you if you want safe, long-term planning.
Since the premiums are fixed, whole life policies require more upfront cost compared to term insurance. Overfunding a whole life policy, like a structured And Asset® approach, can increase your cash value and accelerate growth, adding value to your retirement strategy.
Indexed universal life (IUL) links your cash value growth to a stock market index, like the S&P 500, with a floor to protect against losses. This means your cash value can rise more quickly than whole life, but won’t drop when the market falls.
You have flexible premiums and death benefits, which allow you to adjust your policy as your financial situation changes. This flexibility suits you if you want control and growth potential with some protection from market risks. Keep in mind, caps and participation rates limit your maximum gains.
The costs and complexity of IULs are higher than whole life, so it’s important to review the fees and features carefully to see if it fits your retirement goals.
Variable universal life (VUL) offers the most investment control. You can allocate your cash value among various mutual funds or separate accounts that carry market risk and potential for higher returns.
Your cash value can grow faster than whole life or IUL, but there’s also the chance of losing money. You take on more risk, which may suit you if you are comfortable managing investments and want higher growth in retirement savings.
Premiums and death benefits are flexible. However, VUL policies require regular monitoring and understanding of investment choices. Fees can be high. If you want to combine life insurance with active investing for retirement, VUL gives you that option.
A life insurance retirement plan offers unique advantages that can enhance your financial security beyond what typical retirement accounts provide. It can grow your savings with favorable tax treatment, let you access funds flexibly, and support your plans for passing wealth to your family.
With a life insurance retirement plan, your cash value grows tax-deferred. This means you don’t pay taxes on the growth each year as you would with some investments. Over time, the cash value can build up significantly, potentially outpacing taxable accounts.
Because the money grows inside a permanent life insurance policy, it is shielded from capital gains taxes. You can also avoid the tax drag common to other savings vehicles. This makes a LIRP a useful complement to your IRA or 401(k).
A key benefit of a LIRP is how you can access your money. Unlike retirement accounts that have required minimum distributions and penalty rules, you have more control over how and when to withdraw funds.
You can take out loans or withdrawals from the policy’s cash value, often tax-free if done correctly. This flexibility lets you use your cash value to fill gaps in income or cover unexpected expenses during retirement. Because you’re not locked into a strict withdrawal schedule, you can adjust your distributions to match your lifestyle needs. This can provide financial peace of mind as you manage your income in retirement.
A life insurance retirement plan also serves as a tool for leaving money to your heirs. The death benefit can pass tax-free to your beneficiaries, providing financial security for your family. This feature can supplement your estate plan by offering funds that don’t go through probate.
It can also help cover estate taxes or other costs, preserving more of your wealth for future generations. By combining retirement income with life insurance protection, you create a dual-purpose asset.
Life insurance retirement plans can seem attractive, but they come with costs and risks that need careful thought. You should understand how fees affect your money, the chance of losing coverage if premiums aren’t paid, and the effects of borrowing or withdrawing cash from your policy.
Life insurance retirement plans often include higher fees compared to traditional retirement accounts. These fees can come from commissions, administrative costs, and insurance charges.
Over time, these expenses reduce the cash value growth, limiting the money available for your retirement. You must also consider the premium size and frequency. Paying too little may risk your policy lapsing.
Overfunding can help build cash value faster, but it might require a larger upfront cost, which may not suit every budget. Be aware that these costs might make a life insurance plan less efficient than simpler options like IRAs or 401(k)s.
It’s important to compare these expenses carefully before deciding if this fits your retirement strategy.
If you don’t keep up with premium payments, your life insurance retirement plan can lapse, meaning the policy ends and you lose coverage. This risk is higher if your cash value isn’t enough to cover the premiums when you stop paying out of pocket.
A lapse can mean losing the death benefit and any accumulated cash value if there aren't sufficient funds to keep the policy active. This could happen unexpectedly during financial hardships or market downturns if you’re relying on cash value to cover premiums.
To avoid lapse risk, you must monitor your policy’s cash value closely and understand the timing and amount of your premiums. It’s wise to have a backup plan to cover payments if the cash value is insufficient.
Borrowing or withdrawing money from your life insurance can provide access to funds, but it comes with risks. Loans reduce your policy’s death benefit and cash value until repaid. If you don’t repay, the outstanding loan plus interest gets subtracted from the death benefit.
Withdrawals may lower the cash value permanently and can trigger taxes if they exceed the amount you’ve paid in premiums. These actions may also increase the chance of your policy lapsing, especially if your cash value drops below the required level to cover costs.
Before using loans or withdrawals as retirement income, understand the short and long-term impact on your policy.
You have several options when planning for retirement, each with different features on taxes, access, and risk. Comparing a Life Insurance Retirement Plan (LIRP) with traditional accounts helps you see where it fits in your overall plan.
A 401(k) or IRA is designed to build retirement savings with tax advantages, but usually comes with required minimum distributions after age 73. You contribute pre-tax dollars to these accounts, which grow tax-deferred, but withdrawals are taxed as income.
A LIRP uses permanent life insurance that builds cash value. This cash grows tax-deferred and can be accessed through policy loans tax-free if managed properly. Unlike 401(k)s or IRAs, LIRPs do not have RMDs or early withdrawal penalties.
However, LIRPs typically cost more in fees and premiums and are better as a supplement rather than a replacement for your retirement accounts. They also provide a death benefit, which 401(k)s and IRAs do not.
Feature
401(k) / IRA
Life Insurance Retirement Plan (LIRP)
Taxation on withdrawal
Taxed as income
Tax-free loans, if done correctly
Required minimum distribution
Yes
No
Death benefit
No
Yes
Cost
Lower fees
Higher premiums and fees
One main benefit of a LIRP is tax diversification in retirement. You can have accounts that are taxable, tax-deferred, and tax-free working together. Your 401(k) or IRA withdrawals will count as taxable income, potentially pushing you to a higher tax bracket.
A LIRP’s cash value can be tapped without increasing your taxable income, which can lower your overall tax bill. It also offers protection if tax laws change, since you have more control over when and how to take income.
A LIRP is not generally meant to replace your main savings but to add flexibility. It creates a pool of tax-free funds accessible during emergencies or to cover retirement gaps. You can keep your 401(k) and IRA as your primary growth tools and use the LIRP’s cash value for supplemental income.
It also offers a death benefit that helps protect your family’s financial future. Structured overfunded whole life strategies focus on maximizing these benefits, balancing growth with protection.
When deciding if a life insurance retirement plan (LIRP) fits your needs, it’s important to consider who benefits most, your health status, and your financial situation. These factors affect whether a LIRP can support your retirement goals effectively and align with your long-term planning.
A LIRP is best for people who want both life insurance protection and a way to build cash value over time. You might benefit if you have maxed out traditional retirement accounts like IRAs or 401(k)s and seek a tax-advantaged supplement.
Entrepreneurs, investors, and families who want flexibility with access to cash value during retirement may find LIRPs useful. The cash value grows tax-deferred, and under certain conditions, withdrawals can be tax-free.
If your priority is leaving a financial legacy while having a retirement income source, a LIRP could fit. However, LIRPs are less suitable if your budget is tight, since premiums can be higher than term life insurance. Also, if you plan to retire soon, the cash value might not have enough time to grow.
Your health status directly impacts your eligibility for a LIRP. Because LIRPs are permanent life insurance policies, you’ll undergo medical underwriting.
Healthy individuals usually qualify for better rates and policy terms. If you have pre-existing conditions or a history of illness, premiums may be higher, or approval could be denied. Some insurers offer simplified underwriting, but often with coverage limits.
Underwriting looks at your age, medical history, lifestyle, and family medical background. If you’re unsure, consider getting a health checkup before applying.
A LIRP needs stable financial resources because it involves paying regular premiums over the long term. You should have enough income or assets to cover these premiums without strain. Consider your overall retirement plan and whether the LIRP fits it logically.
You want to ensure you’re not replacing more cost-effective savings or missing out on other tax benefits from 401(k)s or IRAs. LIRPs work well if you need extra tax-efficient income or want to protect against market volatility.
Evaluate how much cash value you want to build and how much risk you can tolerate. Working with a planner helps tailor the LIRP to your finances and goals.
Setting up a life insurance retirement plan involves clear goals, choosing the right policy, and expert guidance. You’ll need to understand your retirement needs, select a policy that fits, and work closely with professionals to ensure your plan works as intended.
Start by defining what you want from retirement. Consider how much income you will need and when. Think about expenses like health care, travel, and daily living. Next, assess how this plan will fit with other savings such as IRAs or 401(k)s.
A life insurance retirement plan (LIRP) is often a supplement, designed to cover gaps or provide tax-free income. Also, decide if leaving a death benefit to your heirs is important. Your goals shape the type of policy and funding approach you’ll choose.
Pick a permanent life insurance policy, often whole life, which lets you build cash value over time. You will likely overfund the policy, paying more than the yearly cost of insurance, to accelerate cash growth.
Customize your policy by choosing how much premium to pay and adding riders if needed, like disability or long-term care. These can protect your investment and provide extra benefits.
Make sure the policy’s cash value growth is competitive and flexible enough to let you access funds during retirement without penalties.
You should work with a knowledgeable financial professional who understands life insurance retirement planning. They can help match a policy to your retirement goals. Experts guide you through complex options and tailor the plan to your unique situation.
They also coordinate with your tax and estate planning strategies to maximize benefits. Consultation helps avoid common mistakes like underfunding or misusing the cash value. Professional advice ensures your LIRP delivers steady, tax-efficient income over time.
To keep your Life Insurance Retirement Plan (LIRP) effective, you need to track its growth carefully, make changes to how much you put in when needed, and review your policy regularly. These steps help ensure your plan meets your retirement and protection goals.
You should check the cash value growth and death benefit regularly, at least once a year. Look for how the cash value is increasing and if it aligns with your expectations. Keep an eye on interest credits if you have an indexed or universal life policy, since they impact your plan’s growth.
Tracking fees and costs is important too. High fees can slow cash value growth. Compare your policy’s current performance against your original projections. Using tools or working with a trusted advisor can help you stay on track and spot issues early.
Your needs might change over time. If you can, increase your contributions to build cash value faster and improve your tax-free income potential. Conversely, if you face financial strain, you might lower payments temporarily, but know this can slow growth and affect the death benefit.
Avoid missing premium payments because this may risk the policy lapsing. If you have an overfunded whole life plan, adjusting payments intentionally can optimize the benefits without jeopardizing coverage. Always check your policy’s terms before making changes.
Review your LIRP policy details every few years. Make sure it still fits your retirement goals and family needs. Look for opportunities to take advantage of new features or riders that can add value.
You might want to explore loan options or withdrawals from your cash value in retirement, but discuss the impact first. Periodic reviews help you avoid surprises and clarify what adjustments fit your changing life.
Scheduling a policy review with a professional can keep your plan purposeful and aligned with your financial intentions.
Many people think life insurance retirement plans (LIRPs) are only for death benefits. In reality, they also build cash value you can use while alive. This cash value grows tax-deferred and can be borrowed or withdrawn for retirement expenses.
Some believe a LIRP will replace their 401(k) or IRA. It won’t fully replace these accounts, but it can serve as a helpful supplement. You gain flexibility and added tax advantages that traditional retirement accounts might not offer.
Another myth is that life insurance plans are complicated and expensive. While some policies have higher premiums, overfunded whole life insurance, like a structured And Asset® approach, can offer both growth and protection with intentional funding strategies. People often worry about taxes.
Withdrawals from the cash value can be tax-free if done properly. This makes LIRPs a valuable tool in tax planning for retirement. Finally, some think life insurance is unnecessary if you have no dependents.
However, these plans can still provide financial security, offer an extra retirement income source, and help protect your estate.
A well-structured life insurance retirement plan can add tax-advantaged cash value, flexible access, and a lasting death benefit to your strategy. Used alongside IRAs and 401(k)s, it helps smooth income, manage taxes, and protect your family.
If you want a clear, customized path, BetterWealth can help you evaluate policy types, funding levels, and distribution rules. We’ll align your LIRP with your goals, risk tolerance, and timelines so the plan complements—not replaces—your existing accounts.
Ready to see how a life insurance retirement plan fits your picture? Book a retirement planning call and start building your Better Way™.
A Life Insurance Retirement Plan (LIRP) is a permanent life insurance policy designed to build cash value you can access in retirement. It aims to supplement other savings, not replace accounts like a 401(k) or IRA. You also keep a death benefit for your beneficiaries.
Cash value grows tax-deferred. In retirement, you can take withdrawals up to your basis and then use policy loans for additional income. When structured and managed correctly, this can create tax-free cash flow while the policy stays in force.
No. A LIRP is typically a supplement to qualified accounts. It adds flexibility and protection along with potential tax advantages, while your 401(k) or IRA remains a primary accumulation tool.
Key risks include higher fees, policy lapse if premiums or charges are not covered, and loan mismanagement that can erode cash value. Poorly designed funding can reduce performance. Ongoing reviews help manage these risks.
Contributions should align with your budget, goals, and MEC limits. Many strategies use intentional overfunding to accelerate cash value while staying within tax rules. Consistency over several years is important.
A Modified Endowment Contract (MEC) changes tax treatment. Distributions are taxable to the extent of gain and may face penalties if taken before age 59½. The death benefit remains income tax-free for beneficiaries.
Withdrawals reduce cash value and basis permanently. Loans keep cash value in the policy but accrue interest and reduce the death benefit if not repaid. Many plans use basis withdrawals first, then loans for ongoing income.
No. LIRPs do not have RMDs. You control the timing and amount of distributions, which can help manage taxes and sequence-of-returns risk.
Yes. If premiums are not paid and the cash value cannot cover policy charges, the policy can lapse. Lapse with an outstanding loan can also create a taxable event. Monitor funding and values regularly.
A LIRP may fit individuals who want permanent coverage, have longer time horizons, and have maxed out or are contributing to other retirement accounts. It can help those seeking tax diversification and a flexible income source in retirement.
.svg){kind=logo}
