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What Does LIRP Mean?
What does LIRP mean? It’s an acronym for “life insurance retirement plan,” pronounced “lerp.” If you didn’t know life insurance had benefits for you while you’re alive, get ready to be surprised! Life insurance can actually help provide supplementary income, long-term care benefits, and more.
What Does LIRP Mean? It Starts with Cash Value Life Insurance
When we talk about life insurance retirement planning, it requires a certain type of coverage: cash value life insurance, also known as permanent life insurance. Unlike term life, cash value coverage doesn’t expire. It lasts for the rest of your life, and has a cash value account attached to your policy.
That cash value account gets funded over time in two ways:
- Premium payments. A portion of every payment you make goes into your cash value account, after the insurer deducts the cost of your coverage and any fees for account maintenance.
- Interest. There are several different types of cash value policies, and each get credited with interest in a different way. Whole life has a safe, secure guaranteed interest rate locked in when you buy coverage. Universal life’s interest rate varies over time, while indexed universal life lets you tie your interest rate to the performance of a market index. When it makes gains, you earn more; when it loses value, you earn less.
This cash value is what gives you so many benefits as you approach and enter retirement.
Keep in mind that term life doesn’t have cash value, so although it provides excellent income replacement coverage for your loved ones, it doesn’t have the income-generating potential of cash value coverage.
What does LIRP mean for you? Sometimes it’s easier to talk to a real person who can offer you personalized advice. At LifeQuote, life insurance is all we do – and we love to share all the little-known ways cash value policies can strengthen your financial portfolio. Call us at (800) 521-7873 or email us at info@lifequote.com and let’s talk about how cash value could give your retirement a boost!
Retirement Benefit #1: Cash Value as Supplementary Retirement Income
Your cash value account will grow tax-deferred over time. That means you don’t owe any income tax as it grows. If you pull money out before the age of 59 ½, you’ll only owe tax on any amount you withdraw that’s in excess of what you’ve already paid in policy premiums. For example, if you’ve paid $50,000 into your policy in the years since you purchased it, you can pull out $50,000 worth of cash value in a loan or withdrawal before you owe any income tax.
If you’re over the age of 59 ½, you won’t owe tax no matter how much you pull out of your cash value. That’s what makes it so valuable as an income stream in retirement.
You can access your accumulated cash value in several ways:
- Policy loan. Borrow against your cash value with a private loan from your insurer. These loans are never reported to credit bureaus, so they won’t affect your credit in any way. You will be charged interest for the loan, but you don’t technically have to repay it. Any amount you owe will be subtracted from the death benefit before it’s paid out to your beneficiaries. The biggest benefit of a policy loan is the fact that your cash value remains in your account to continue accruing interest. You’re not removing it, so the new interest earned may partially or wholly cancel out the interest charged on the loan.
- Partial withdrawal. If you’d rather not borrow, you can simply withdraw money from your cash value account. Your insurer will charge a withdrawal fee, but since it’s a one-time fee, it may make more sense to do that than to incur interest on a policy loan.
- Full surrender. If you ever decide you don’t need your policy anymore, you’re entitled to the full cash value, minus any surrender fee your insurer may charge.
What does LIRP mean for your retirement? We’d love to share all the little-known ways cash value policies can strengthen your financial portfolio. Call us at (800) 521-7873 or email us at info@lifequote.com and let’s talk about how cash value could give your retirement a boost!
Retirement Benefit #2: Living Benefits
Most insurers provide several ways for you to tap into the death benefit in addition to the cash value if you have an unexpected medical emergency. Here are just a few ways to do that:
- Terminal illness rider. Most insurers provide this for free, giving you access to the death benefit if you’re diagnosed with a terminal illness.
- Chronic illness rider. Your insurer may also offer a paid chronic illness rider, letting you access the death benefit if you’re diagnosed with a covered chronic illness.
- Critical illness rider. Similar to the chronic illness rider, a critical illness rider lets you tap into the death benefit if you experience a covered critical illness, usually including things like cancer, heart attack, or stroke.
- Long-term care rider. Some insurers also offer a long-term care rider that lets you use some or all of the death benefit to pay for care if you’re unable to complete a certain number of the activities of daily living (ADL): things like dressing, eating, and toileting. Because stand-alone long-term care coverage can be prohibitively expensive, using a rider on your life insurance policy is a more affordable way to make sure you at least have something in place in case you need it.
What does LIRP mean for your retirement? We’d love to share all the little-known ways cash value policies can strengthen your financial portfolio. Call us at (800) 521-7873 and let’s talk about how cash value could give your retirement a boost!
Retirement Benefit #3: No Contribution Limits
Common retirement planning vehicles like a 401(k) and IRA have contribution limits. But what if you want to save even more for retirement? You could stash that money in a savings account, but it’s going to languish there, earning little to nothing in interest.
On the other hand, you’re allowed to overfund your life insurance policy and you’ll earn your policy’s stated rate when you add extra money to your cash value account. Some clients who don’t need the death benefit use a cash value policy specifically to create a tax-free income stream during retirement.
There is one caveat here: if you’re using the account for retirement purposes (as opposed to estate planning), you want to stay under the IRS’s rule (7702) for an overfunded account. If you pay too much into it during the first seven years, it may be reclassified as a modified endowment contract (MEC), which means your withdrawals would be subject to income tax no matter how much you’ve paid into the policy. The goal would be to wait out those first seven years, and then contribute as much as possible to your account to grow your cash value into a viable income stream. Your life insurance agent can help you set up your policy properly to avoid the extra tax burden that comes with a MEC. Most insurance companies will help you with this too, often refunding money that would cause your policy to be reclassified as a MEC.
What does LIRP mean for your financial future? At LifeQuote, life insurance is all we do – and we love to share all the little-known ways cash value policies can strengthen your financial portfolio. Call us at (800) 521-7873 or email us at info@lifequote.com and let’s talk about how cash value could give your retirement a boost!
