Have you ever Googled the phrase “LIRP Meaning”? There’s quite a bit of information out there, some of it conflicting.
Cut through the noise by skimming this brief overview of exactly what LIRP stands for and how it works.
First, let’s define LIRP. A Life Insurance Retirement Plan might also be called “Premium Financed Life Insurance” or “Leveraged Life Insurance”.
In short, LIRPs utilize life insurance as an asset to grow wealth for retirement.
How Does LIRP Work?
Utilizing a LIRP as an investment vehicle is wise, especially during a Bear Market, because it’s considered a fixed asset.
This means the investment growth happening within your life insurance policy is generally unaffected by swings in the market.
Here’s a step by step breakdown of exactly how a LIRP established by EFS can work:
Rather than paying life insurance premiums monthly over three decades, you contribute an outlay for 5, 7 or 10 years. Your life insurance policy is a viable asset.
The insurance company provides a return on that cash value. The interest rate of return have historically averaged between 8%-15%! This kind of guaranteed downside protection is very attractive for those seeking diverse retirement portfolios.
To build even greater wealth for retirement, a qualified lender further contributes to the cash value of this policy. By simply leveraging the life insurance policy for the asset it is, a lender will underwrite more investment capital to improve policy performance.
LIRP Insurance: Are There Risks?
Unlike equity-based investments that are affected by stock prices, business decisions and world affairs, Life Insurance Retirement Plans are certainly considered low-risk.
Remember, taking out a loan for anything comes with risk should your financial standing change. For example, if an LIRP policy holder doesn’t make their yearly contribution, they are at risk of diminished performance or losing the asset.
Secondly, it’s important to note that the interest rate environment does affect the growth potential for a LIRP.
Because the insurance company is providing a return on the cash value invested in the policy, as interest rates change, so do the earnings.
LIRP can be a much safer investment vehicle than equities because of the guarantees associated with the policy.
Increases in interest rates typically have a beneficial impact on policy performance. This is because insurance companies utilize fixed income assets as a way to provide consistent returns to ensure sustainability.
LIRP Meaning: Understanding the Tax Benefits of Life Insurance Retirement Plans
When it comes to retirement planning, taxes play a bigger role than you might think.
This is especially true for people without some type of guaranteed retirement income (like a pension plan, for example). How can you make sure taxes aren’t eating away at your retirement dollars?
There are two major tax benefits of premium financed life insurance:
The policy value in the insurance policy is earning interest tax-free.
Distributions from the account can be tax-free and have absolutely no qualified restrictions, meaning you can take money out any time without penalty.
I find people are often surprised to learn exactly how simple it is to access these earnings without having to worry about being taxed on them.
What other questions can I answer for you about Life Insurance Retirement Plans? I purchased my first premium financed life insurance policy over 17 years ago and I am happy to answer any questions you may have. Drop me a line or contact my office any time: email me at jeff@enhancedfunding.com or call 773-318-9608.
Jeff Faine, Founder of EFS.