June 19, 2021
What is a LIRP? | Life Insurance Retirement Plan
LIRP is really Cash Value Life Insurance and utilizing Indexed Universal Life Insurance.
What LIRP Can do?
1. Tax-free growth (Tax Code Section 7702)
2. Indexed (downside protection)
3. Death Benefit + Long-term Care Benefit
The downside is Fees (1½ %)
If you’re looking for tax-free growth this is a good tool and not touching the money right away, and you’re looking at a death benefit that doubles as a long-term care benefit then maybe this is a tool that you might want to look at.
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What is a LIRP?
Welcome to Berry’s bites. Please join our host, attorney and financial advisor, Chris Berry.
It’s kind of a marketing term. It stands for life insurance retirement plan. I think the first time I ever heard it was from David McKnight. He has a book called The Power Of Zero. Good book. It’s kind of heavily trying to sell you on life insurance. But really, all it is, is cash value life insurance. And typically, we’re utilizing Index Universal Life Insurance, with the idea that you’re not necessarily chasing the death benefit, but what it can do is two things. One, it can give you tax-free growth. So if the market goes up, you get tax-free growth inside of it due to section 7702 of the tax code. Second, it’s indexed. So, that means that you have downside potential. So if the market goes down, you don’t lose anything. Third, and this is a big one for a lot of people, that death benefit that you don’t normally want necessarily in retirement, that can double as a long-term care benefit.
Most people don’t like paying separately for long-term care insurance, pure traditional long-term care insurance, but they do want long-term care. So this is a way that we can have a death benefit that could double as a long-term care benefit. Now, a downside sometimes people talk about his fees like, all right, don’t these cost something? They do. They have to have an insurance component to it, to qualify under section 7702. So kind of think of it as, you’re building this bucket of tax-free money. Right? And you’re right, there are fees associated with it. I think on average, the fee ends up being about one and a half percent. Over the lifetime of the contract, it averages out about one and a half percent. So, you have this tax-free growth that’s happening, and then you have this fee that’s going out and the fee is going to the death benefit that also is doubling as a long-term care benefit.
And you have to have this to be able to qualify for this 7702, so that you get this growth that’s tax-free. It’s an interesting tool, if you’re looking for tax-free growth and you’re looking at not necessarily touching the money right away, and you’re looking at a death benefit that doubles as a long-term care benefit, then maybe that’s the tool that you would want to look at. Other tax-free investment vehicles are Roths. Those are pretty straightforward. They just grow tax-free. But this is a way that maybe a percentage goes into Roth and a percentage goes into something that’s giving you a death benefit that doubles as a long-term care benefit.