A life insurance retirement plan or LIRP is a powerful wealth accumulation tool used by consumers looking to build their own private pension plan.  With the unreliability of social security and uncertainty of employer-sponsored retirement plans, a Life Insurance Retirement Plan makes for a great tax-deferred solution for accumulating wealth and a tax-free method to take your wealth as income.

A LIRP is a tried and true method used by many high-income earners to build a solid tax-free retirement income that can supplement other traditional plans consumers often implement.

The LIRP isn’t for everybody but with our help and guidance, you can decide if it’s a good idea or undertaking. I almost every situation we will recommend that you use Indexed Universal Life insurance to fund your LIRP. But first, let’s take a look at the pros and cons.


The Positive Aspects of a LIRP

indexed universal life

Since most individuals and families have a conservative attitude when it comes to retirement planning, we will always recommend Indexed Universal Life because the cash account will be linked (not invested) to one or more equity indices. This method of accumulating funds based on the performance of your linked indices will allow you to earn interest based on the performance of the market without actually being in the market.



A LIRP Provides Safety even in a Volatile Market


Indexed Universal Life insurance which is the vehicle to accumulate wealth in your LIRP contains a FLOOR rate which is a very important safeguard. The FLOOR rate represents the minimum amount of interest that your cash account can earn after a crediting period (typically monthly or annually).

Since we never recommend an Indexed Universal Life (IUL) policy with a FLOOR rate lower than zero, your cash account will not lose money if the market does. For example, if your cash account is linked to the NASDAQ which happens to post a negative return after a crediting period, your account will earn 0% interest and therefore not lose money.


A LIRP Earns Interest based on the Performance of the Market

indexed universal life graphic

Your IUL will earn tax-deferred interest based on the indices you have selected to link your account with. Your IUL will also contain a CAP rate which represents the maximum amount of interest your cash account can be credited at the end of a crediting period. Most of the companies we represent have a CAP rate somewhere north of 12 or 13%.

So then, if your IUL is linked with the S&P 500 and the NASDAQ 100 and your CAP rate is 13% and these two indices earn 15%, your cash account would be credited 13%.

 Here are two of the most popular indices performance graphs for the last 5 years: 


S&P 500

S&P 500 historical data




Nasdaq historical data

With Indexed Universal Life Insurance, it’s certainly comforting to know that your account would earn interest during the periods when each index earned money but it would not suffer loss each period that the index suffered loss.


Your LIRP does not pose a Tax Liability


Traditional retirement plans are either fully taxed or tax-deferred, however, a LIRP funded with Indexed Universal Life insurance is tax-free. Your contributions (premiums) are made with after-tax money and the interest you earn is tax-deferred. Since you will be taking your money at the appropriate time via policy loans you will avoid paying taxes on your income stream during retirement.


The “live too long” Safety Net


For many retirees, aging isn’t always a good process. Many retirees become critically ill or must live out their golden years in a nursing or hospice facility. If this is the case for you, your IUL policy has an accelerated death benefit provision that provides for the insurer to advance a large portion of your death benefit to help you and your family deal with severe illnesses that result in extreme medical costs and nursing expenses.


Negatives in a Life Insurance Retirement Plan


Fees and Management Expenses


The negative press we’ve encountered regarding a LIRP funded with Indexed Universal Life insurance is debatable. Although you’ll likely find many articles suggesting that the management fees and other expenses are higher with a LIRP, if you look closely and compare the fees to the account value, the fees charged in a LIRP are about the same, or in some cases even lower than fees charged in traditional retirement plans.


Lower Returns than what the Stock Market Offers


Since a LIRP has a CAP rate that impacts the amount of interest you can earn from the indices, you can earn more by directly investing in the market. However, the small loss of returns is more than offset by the FLOOR that prevents your account from losing money as a traditional investor would.

Additionally, your IUL has an annual reset. This means that your cash account does not have to earn back losses before it can reap the benefits of gains. Each year, your account starts off with the same amount of cash as it had when the previous year ended.


The Companies we recommend for your LIRP


Although all insurance companies that offer IUL policies change their CAP, FLOOR, and PARTICIPATION rates from time to time, many of the companies we represent offer bonus money for policyholders. In most cases, the bonuses are paid to loyal policyholders who are in it for the long term.



Let's Talk About Your Wealth and Protection Strategies

Curt GibbsWith each client, Structured Wealth Strategies will develop a retirement income financial plan that maximizes assets, minimizes taxes, and guarantees the most inflation-adjusted income possible utilizing the fewest amount of assets.

Structured Wealth Strategies is an association of independent business, legal, and financial professionals dedicated to helping people understand the challenges and opportunities that finances have on their lives.

Each associate at Structured Wealth Strategies has extensive experience in their respective profession and has used the concepts, methods, and solutions they promote to resolve financial challenges in their own lives. They focus on helping people build and protect their money using “Specialized” financial instruments, concepts, and methods.

My name is Curt Gibbs and I invite you to contact our office to discuss your financial situation. (800) 595-1130