Pros and Cons of a Life Insurance Retirement Plan
When it comes to retirement plans, there are as many options as there are people. A popular option that retirees have chosen again and again is a Life Insurance Retirement Plan, or LIRP. Maybe you’ve heard of this before, but if you’re not sure how it works, you’re not alone.
If you’re wondering how life insurance is supposed to help you retire, Matador Insurance is here to answer all your questions. But, of course, a LIRP isn’t perfect for everyone, so read on to learn if this popular alternative to retirement investments is a better option for you.
Value vs. Security
The value you get out of a Life Insurance Retirement Plan has benefits and drawbacks. With a LIRP, you have guaranteed value. All life insurance plans have received monthly contributions, creating cash value as they add up. When that value grows, it can be borrowed against, or withdrawn as cash.
The benefit of the security of a life insurance retirement plan is the guarantee of a financial floor for your investment. With a LIRP, you’ll never experience a bad year. Some LIRPs guarantee at least a 3% or 4% return!
With the stability that a life insurance retirement plan provides, there are some downsides when compared to a traditional retirement path, like a 401k or IRA. For example, a LIRP will give you safe passage through tough markets, but when markets are booming and other investments might be paying dividends, a LIRP wouldn’t change.
Paying Taxes for Your Money
When you pay your monthly contribution to a life insurance policy, you’re using the money you’ve already had to pay taxes on. This means that you’re not getting such a great deal upfront.
As a result, it may take more time to build up the sort of value that you’d need to finance your dreams of retirement or business ownership. A 401k matched by your employer would create more growth more quickly, but as stated above, a traditional investment like that isn’t secured like a LIRP.
One of the benefits of choosing a LIRP is that you can access your money regardless of your age. Untaxed investments, like a 401k, can only be withdrawn without incurring a tax fee after the person has reached retirement age. However, there are no such restrictions on getting a loan from your LIRP, so you can use that money any time you’d like. This creates a great buffer, especially if you or your spouse has a 401k that can’t yet be withdrawn from.
LIRP Contributions and Death Benefit
One of the things people love about LIRPs is the flexibility with payments. The value of a Life Insurance Retirement Policy comes from an individual paying above the premium for their life insurance. The minimum payment is defined at the same time as the death benefit, but you can pay as much as you want each month. The excess goes towards the cash value of your retirement plan. As you invest more, you can also withdraw more.
Upon the insured person’s death, a Life Insurance Retirement Plan pays out in an amount defined in the insurance policy. Any excess balance from the loans taken out against the policy’s cash value are paid off by the death benefits, and then the remainder is distributed to the willed parties.
Pros and Cons of a LIRP
There’s no way to deny that a LIRP is a more secure option for retirement finances. Since an insurance plan is paid for using taxed income, when you pull money out of the plan, there’s no tax deductible taking a bite out of your money.
A life insurance plan is more flexible than other investments. If there’s a month where you can’t pay as much money toward your life insurance balance, you don’t have to worry. Plus, with a LIRP, that money is yours, so you can have it any time you need it, no need to wait until retirement.
Some of the drawbacks to LIRPs are that they don’t grow as quickly as some other investments. A matched 401k will likely generate more value, faster. It’s important to point out that a LIRP isn’t a savings account, and you’re still paying for the life insurance policy. That means you’ve got slightly less money to work with compared to other investments, but you can’t discount the value of the death benefit.
Matador Insurance is here for any questions you might have about retirement. It only takes a phone call to start learning about how much you could save. Every person’s situation is unique; there’s no catch-all retirement plan. Doing all the research on your own is a great way to begin understanding, but the best course of action is to talk to the experts.
With years of experience and an outstanding track record, Matador Insurance can confidently inform any decisions you’re getting ready to make. Retirement planning can’t wait. The earlier you begin, the greater your savings will grow, so contact Matador Insurance today to protect your future.
