A LIRP (Life Insurance Retirement Plan) is a life insurance policy that is designed to maximize the accumulation of cash within a policy's growh account. Often the traditional approach to life insurance is to buy as much life insurance as possible while for as little money as possible. The LIRP strategy uses the opposite approach. With a LIRP you are buying as little insurance which is allowed by the IRS while stuffing as much money into it as the life insurance allows. When utilized as a tax-free accumulation tool, the LIRP has a number of benefits. 

No Contributiion Limits

Both Traditional IRAS and Roth IRAS have contribution limits. With a LIRP the IRS poses no limits on the amount you can contribute. They only stipulate that the amount of your contributions be tied to a specific death benefit. 

No Income Limits

With the traditional IRA and the roth IRA there are income limits. Meaning once you reach a certain income threshold you can no longer contribute to these investment vehicles or the contributions are no tax deductible anymore. With the LIRP there are no income limitations imposed by the IRS. Statistics show that some 85% of CEOs of Fortune 500 companies utilize the LIRP as one of their primary retirement tools.

Multiple Accumulation Strategies

1. Insurance company investment portfolio: You can opt to grow your money within the general investment portfolio of the insurance company that admiisters the program. The returns are typically conservative but consistent.

2. Stock Market: Your contributions to the insurance company are invested into mutual fund portfolios in the stock market called sub accounts. This approach offers the possibility to make greater returns but also offers greater risk of severe market declines.

3. Insex: You can contribute dollars to an accumulation account whose growth is linked to the upward movement of a stock market index such as the Dow, the Standard and Poor, or the NASDAQ. You can participate in the growth of the index to a cap, typically between 11% to 13%. On the other hand if the indexes ever loses money, the account is credit zero, so that it never goes down in value. This provides a safe but productive way to accumulate tax free dollars.

LIRPS as a Long Term Care Plan

Many life insurance companies offer a provision whereby clients can access death benefit proceeds prior to the death for the purpose of paying for long term care. This is a good alternative to paying for long term care insurance policies where clients pay premiums for protection which they hope they never use. When clients use the LIRP to cover long term care risks, they still pay for it, but if they die while never using the benefit their heirs still receive a tax free death benefit. So there is not this sensation that your paying for something that you hope you will never use.

The Costs of a LIRP

The costs of the LIRP are generally higher in the early years and lower in the later years. Considered over the life of the program these can average about 1.5% depending on the policy. This is simliar to many management fees imposed on investing in mutual funds or managed investments inside an IRA.

The best way to understand the fees associated with a LIRP is to consider an ATM machine. Whether you withdraw $20 or $100 the fee stays the same roughly $2.50 I the fee never increases then the best strategy would be to withdraw as much money as the machine allows. The same is true with a LIRP whether you contribute the minimum allowed to keep the policy in force or the maximum under IRS guidelines the expenses wont change. To achieve the fees as low as possible the death benefit must be kept as low as possible while at the same time maximizing contributions. 

Call us today to find out how using a LIRP Strategy can provide you with a tax free retirement.

Richard Sinton Licensed Life Insurance Broker at  702-949-0930