The life insurance retirement plan, commonly referred to as LIRP, is an impressive financial tool used by millions of Americans in order to protect and secure their way of living well into retirement and beyond. While there are hundreds of different products and services available in the insurance industry, none offers the safety and flexibility quite like the LIRP. In this article, we will briefly examine the LIRP pros and cons.
Life Insurance Retirement Plan (LIRP) Pros
If you’re a risk-taker that enjoys the thrill associated with the latest financial scheme, then the LIRP is not the strategy for you. However, if you take a more conservative approach towards your investment choices, the LIRP would be the wisest choice. Let’s take a look at some of the top advantages to choosing a LIRP:
Life insurance retirement plans provide what’s known as a guarantee, which is the floor of your investment returns. This guarantee means that you will never take a loss on your investment. In fact, depending on your LIRP selection, you may even be provided the guarantee that you will never receive less than 4%.
Additionally, a LIRP provides you with a guaranteed death benefit. Upon your passing, the death benefit will be paid to your beneficiary as tax-free income. The LIRP also offers you the ability to design your plan so that your cash value grows each year, which provides your beneficiaries with the maximum death benefit.
During the time that you are alive, your LIRP provides tax-free income that you can receive as monthly withdrawals or as a loan against your accumulating cash value. This feature provides a great option to replace or supplement your retirement income tax-free.
Additionally, a LIRP has an optional disability feature, which provides payment to your loved ones in the event that you become permanently disabled, terminally ill, or need long-term care. And at the time of your death, the LIRP provides your beneficiaries with a tax-free benefit.
Funding a Business
Many Americans are choosing to work for themselves, rather than someone else, and beginning their own business has been a goal for years. The flexible LIRP gives its policyholders the ability to fund their own business ventures without having to approach their bank, as well as other financial endeavors.
Avoid Rising Tax Rates
Most retirement investment vehicles are either tax-deferred, or fully taxed. However, the LIRP is completely tax-free. How is this possible? The funds invested into the LIRP is paid with after-tax dollars. You will pay taxes on any gains if you decide to withdraw the funds, but if you borrow against your gains, instead of withdrawing them, you’ll have access to your funds tax-free.
A LIRP also provides extra protection against the rising costs related to long-term care. Many life insurance retirement plans (LIRPs) offer an accelerated death benefits feature, which provides a payout if you’re diagnosed as terminally ill. You also have the ability to add chronic illness or long-term care riders for additional protection.
Flexibility for Specific Objectives
A secure LIRP can be designed utilizing a number of different permanent life insurance policies and providers. You can choose among whole, universal, variable universal, and indexed universal life insurance plans. With the advice of financial advisor, you have the ability to design a LIRP specific to your needs.
Commonly Mentioned Disadvantages
As with all life insurance products, LIRPS have their cons as well. The two main criticisms include that as a permanent life product, LIRPs tend to be costly, and the LIRP returns are poor. Let’s examine each criticism:
LIRPs Are Expensive
Many financial advisors will compare term life insurance with permanent life insurance, such as whole life as a selling point. However, this is really not a fair comparison. With term life insurance, you are only paying for the actual cost of insurance, whereas with whole life insurance, part of your premium is going towards your cash value. It’s only logical to conclude that the cost would be higher for a policy with savings component.
Furthermore, a term life insurance policy may be affordable now, but what about in 30 years when you are wanting to renew? You may find yourself wishing that you had locked in that whole life insurance premium rate that would’ve given you coverage over your lifetime.
Poor Returns on LIRPs
While the rate of return is lower than most, the LIRP offers a guarantee preventing a loss on your investment. Even though the growth is slow and steady with a LIRP, you have easier access to your money tax-free.
Of course, there is no one-size-fits-all retirement plan present in the market today. But there are some guidelines to consider with a LIRP that does fit most individual’s needs. First, be sure the LIRP provider is a reputable insurance company. Next, you’ll want to ensure that the LIRP provider has a history of excellent dividends. While not all providers have consistent great returns, it’s possible to find a provider with positive performance in regards to its policyholders’ returns. Finally, you’ll want to make sure that the LIRP provider offers long-term financial security and policy flexibility.
Retirement is Approaching
Make every year count towards planning your retirement – there are only so many years left! In spite of the fact that the guaranteed rate of return for a LIRP is approximately 4%, you’ll still have the opportunity to earn more. Often times, you’ll receive much more. The minimum guaranteed rate of return is a safety net to prevent you from losing out if the market performs negatively. Also, keep in mind that you can combine your LIRP with a banking strategy so you can substantially increase your cash value and receive even higher returns.
The LIRP, existing for decades, has been the most advantageous tested and tried financial strategy for both a healthy standard of living and for retirement. This unique and excellent tool can assist nearly anyone looking to reach their financial goals during their lifetime. If you have questions about whether a LIRP is right for you, contact your independent insurance professional today.