If you’re relying solely on a 401(k) or IRA for retirement, it’s time to explore a smarter, more versatile option. A Life Insurance Retirement Plan (LIRP) provides greater protection, reduced risk, and unmatched flexibility compared to traditional market-based retirement accounts. For those planning to retire early, a LIRP could even save you tens of thousands of dollars in taxes and penalties.
In this article, we’ll break down the essentials of how a LIRP works, showcase the benefits of using whole life insurance to fund your retirement, and help you evaluate if it aligns with your financial goals. To bring the strategy to life, we’ll also share a real-world case study demonstrating its powerful potential.
What is a Life Insurance Retirement Plan?
A Life Insurance Retirement Plan is a wealth strategy that utilizes dividend-paying whole life insurance from a mutual life insurance company to supplement or fully fund your retirement. It offers a number of protections and benefits not found in typical retirement strategies. To fully understand how a LIRP works, you first need to understand the basics of whole life insurance.
How Can You Use Whole Life Insurance to Build Wealth for Retirement?
When people hear the term “life insurance,” they often think of term life insurance—designed solely to provide a lump-sum death benefit to loved ones. However, whole life insurance offers so much more. Specifically, when structured correctly, it becomes a powerful wealth-building tool that provides living benefits you can leverage throughout your life, including in retirement.
Unlocking the Power of Whole Life Insurance for Your Retirement
Whole life insurance is designed to cover you for your entire lifetime, not just a set term. A key feature is its cash value—a unique, tax-advantaged component that grows over time, much like a high-yield savings account. Unlike traditional retirement accounts subject to market fluctuations or restrictions, your policy’s cash value remains stable, accessible, and under your control.
Every premium you pay supports two elements of your policy: the death benefit and the cash value. While conventional whole life insurance policies prioritize the death benefit, you can structure your policy with a focus on maximizing cash value growth—ensuring it serves as a reliable, versatile asset.
The Strategy: Life Insurance Retirement Plan (LIRP)
To harness the full wealth-building potential of whole life insurance, two critical components must be in place:
- A Dividend-Paying Whole Life Insurance Policy
When issued by a mutual insurance company, this type of policy not only guarantees growth but also makes you eligible for annual dividends. These dividends, while not guaranteed, have been consistently paid out by top-rated insurers for over a century. - Paid-Up Additions Rider (PUAR)
The PUAR allows you to inject additional funds into your policy, increasing your cash value at an accelerated pace while maintaining the tax advantages of whole life insurance. With this feature, your policy can be funded just below the IRS threshold, ensuring it remains a non-taxable asset.
Living Benefits: Your Policy’s Cash Value at Work
As retirement approaches, you can tap into your policy’s cash value to fund your lifestyle through tax-free policy loans. Unlike withdrawing from traditional retirement accounts, accessing funds this way avoids triggering taxes. Even better, the policy continues to grow and earn dividends, regardless of the amount borrowed.
Here’s what makes policy loans particularly advantageous:
- Flexibility: Use the funds for anything—travel, healthcare, or supplementing your retirement income.
- No Repayment Pressure: You set the terms. In the case of a Life Insurance Retirement Plan, the loans can remain unpaid, with the balance deducted from your policy’s death benefit.
- Uninterrupted Growth: Borrowing doesn’t stop your policy from earning dividends, so your wealth keeps working for you.
The Paradigm Difference: Maximizing Retirement with Confidence
Unlike conventional retirement accounts, which are often vulnerable to taxes, market downturns, and withdrawal penalties, a Life Insurance Retirement Plan allows you to enjoy greater financial freedom and flexibility. Here’s why this approach aligns with Paradigm Life’s Perpetual Wealth Strategy™:
- Empowering Cash Flow: Your policy gives you access to funds when you need them, ensuring a steady and reliable income stream.
- Providing Protection: It safeguards your financial future and ensures your family receives a lasting legacy.
- Building Wealth: With tax-advantaged growth and flexible borrowing options, you maximize your assets for both living and legacy purposes.
By integrating a Life Insurance Retirement Plan into your financial strategy, you’ll not only enjoy a fulfilling retirement but also create a foundation for generational wealth. This is more than life insurance—it’s a tool to protect, grow, and enjoy your wealth on your terms.
7 Benefits of Using Life Insurance for Retirement
- LIRPs act as a buffer against market volatility.
Because they’re not tied to the market, Life Insurance Retirement Plans are excellent assets to have during a market downturn. You can utilize the cash value of your insurance policy to fund retirement, acting as a volatility buffer in the years after a bear market, allowing funds in your qualified retirement accounts time to rebound.
2. LIRPs are tax-advantaged assets.
Life Insurance Retirement Plans come with a variety of tax benefits, including tax-free policy loans for tax-free retirement income. Your remaining death benefit is also income and estate tax-free. Because you fund your LIRP with after-tax dollars, there’s no guesswork as to what tax bracket you’ll be in when you retire—pay your taxes upfront and enjoy peace of mind in retirement.
3. There’s no limit on annual LIRP contributions.
Qualified 401(k) and IRAs both have limits on annual contributions. Wealthy investors who max out their annual retirement contributions can have more options when it comes to saving for retirement by using a Life Insurance Retirement Plan. Provided whole life insurance policies aren’t overfunded to the point they become MECs and lose their tax-advantages, hundreds of thousands of dollars can be placed in LIRPs annually.
4. LIRPs have a guaranteed rate of return.
Unlike market-based retirement accounts, which constantly fluctuate, Life Insurance Retirement Plans enjoy a guaranteed rate of return. You’ll never take a loss, regardless of a market downturn. Individuals looking for more certainty in retirement with less financial risk may find the stability of a LIRP more appealing than gambling their money in the stock market. In addition to a guaranteed interest rate, LIRPs also earn potential dividends. In fact, once taxes, administrative fees and potential market losses are factored in, a LIRP often outperforms a 401(k).
5. You can access funds in a LIRP at any age without penalties.
Most funds in qualified retirement plans can’t be accessed before age 59 ½ without paying a 10% penalty on withdrawals. The cash value of a Life Insurance Retirement Plan can be accessed at any age, making it a key tool for anyone planning on early retirement and can save you tens of thousands of dollars in penalties down the road.
6. LIRPs offer a guaranteed death benefit.
Although the main function of a Life Insurance Retirement Plan is to offer living benefits to the policy holder, it’s still a life insurance policy, so it comes with a tax-free death benefit. Plus, the death benefit of a LIRP isn’t subject to probate, so your beneficiary gets paid quickly.
7. LIRPs can offer additional insurance protections.
On top of a Paid-Up Additions Rider—supplemental insurance that allows you to rapidly grow the cash value of your insurance policy—you can add on other riders like Long-Term Care and Disability to better protect you and your family. By customizing your LIRP with insurance riders, you create a comprehensive, multi-faceted asset with numerous benefits and protections beyond what any other retirement product can offer.
Is a Life Insurance Retirement Plan Right for Me?
Life Insurance Retirement Plans, like all financial tools, aren’t a one-size-fits-all strategy. Your unique financial situation and goals ultimately determine which wealth strategy is right for your needs. LIRPs are best suited for individuals who are financially responsible and want to take a more active role in their retirement planning.
High-income individuals who max out their retirement contributions and want to save even more are great candidates for LIRPs. The lack of annual contribution limits with the addition of several tax advantages and the ability to infinitely bank are ideal for wealthy families and aggressive savers.
Anyone who is planning on retiring early may also want to seriously consider a LIRP, as there are no penalties for accessing your retirement funds before age 59 ½.
Because LIRPs are whole life insurance policies, you must be able to qualify for life insurance in order to utilize this retirement strategy. The younger you start, the more likely you’ll be able to qualify for insurance and lock in a lower premium—but it’s possible to add a LIRP to your portfolio even if you’re already in retirement or approaching retirement.
How Expensive is a Life Insurance Retirement Plan?
There isn’t a set price for a Life Insurance Retirement Plan. The amount of your insurance policy depends on your financial goals; LIRPs are completely customizable to fit your needs and your budget.
Compared to term life insurance, a Life Insurance Retirement Plan can cost 5-15 times more per year. But a LIRP serves a very different purpose than regular life insurance. When you set up a LIRP, you essentially commit to saving a certain amount of money every year, most of which you will recoup in retirement, along with tax-free interest and dividends. The remainder goes to your beneficiary.
With term life insurance, there are no living benefits and if you don’t pass away within the specified term, your beneficiary gets nothing. Term life and whole life are two completely different products with different functions; the right one for you depends on your financial priorities.
How Do I Set Up My Life Insurance Retirement Plan?
To build the right Life Insurance Retirement Plan for your goals, it’s imperative to work with a qualified Wealth Strategist. Most financial planners don’t know how to properly structure a LIRP, which could leave you stuck with a whole life insurance policy that doesn’t grow cash value efficiently for retirement.
Paradigm Life Wealth Strategists work with nation’s top-rated mutual insurance companies who have paid out dividends for over 100 years and specialize in LIRPs. Your Wealth Strategist can customize the best policy for your budget and retirement goals, and our consultations are always free. Plus, your Wealth Strategist will check in for an annual review every year (or more often, if needed) where you can make sure you’re on track to meet your retirement goals and make adjustments to your LIRP.
Case Study: Retiring With a LIRP
35-year old Aaron knew the importance of investing for a comfortable retirement, but didn’t want to tie up all his cash in a qualified plan he’d be penalized for accessing before age 59 ½. Looking for a better way to save for retirement than a 401(k) or IRA, he met with Paradigm Life Wealth Strategist Justin Atkinson to set up a Life Insurance Retirement Plan.
Based on Aaron’s unique financial goals and budget, Justin suggested a Guaranteed Choice® Whole Life policy from Penn Mutual with an Enhanced Permanent Paid-Up Additions Rider, offering guaranteed growth, regardless of what happens in the market. Aaron won’t have to worry about losing his retirement savings if his market-based investments don’t perform well.
By age 65, Aaron is projected to have a guaranteed $1.2 million in cash value for retirement and a $2.6 million death benefit. When non-guaranteed dividends are factored on, based on Penn Mutual’s historical performance data, Aaron could have over $2.2 million in cash value for retirement and a death benefit of nearly $4.4 million.
Curious to see how the numbers stack up? Explore Aaron’s case study here.
Conclusion
If you’re seeking a retirement strategy that offers greater control, minimized risk compared to the stock market, and the unique advantages of both a qualified Roth IRA and permanent life insurance—without annual contribution limits or early withdrawal penalties—a Life Insurance Retirement Plan (LIRP) could be the perfect solution.
At Paradigm Life, we specialize in crafting tailored wealth strategies that align with your financial goals. Our experienced Wealth Strategists are here to answer your questions, provide clear, customized illustrations, and guide you through a personalized plan—no obligation, no pressure. Take the first step toward achieving financial independence and building a lasting legacy. Contact us today to explore how a LIRP can empower your financial future.
