What Is a LIRP? Life Insurance Retirement Plans Explained
A LIRP is a strategy, not a product
LIRP is shorthand for using cash value life insurance — usually indexed universal life or whole life — deliberately funded near IRS maximums to build cash value efficiently. You buy the smallest death benefit the IRS allows for your premium (the opposite of normal insurance buying), which minimizes insurance charges and maximizes the savings component.
The mechanics through retirement
During working years you fund the policy consistently — ideally 10+ years. Cash value grows tax-deferred with index-linked crediting and a floor. In retirement you access it primarily through policy loans: the insurer lends against your cash value at policy loan rates while the full value often keeps earning credits. Under current law those loans aren't taxed as income and are ultimately settled from the death benefit.
The discipline requirements are real: keep the policy from becoming a MEC, don't over-borrow, and monitor it annually so it never lapses with loans outstanding — a lapse can trigger a painful tax bill.
Best fit, and honest alternatives
A LIRP suits high earners with maxed retirement accounts, business owners with uneven high income, and families that need permanent protection anyway. If you don't need the death benefit and haven't maxed a Roth, the honest answer is usually to do that first. Ask any LIRP proposer to model "term insurance + taxable investing" beside their proposal — good ones will.
Quick Answers
How much do I need to fund a LIRP for it to work?
Meaningful commitments — commonly $500+ per month sustained for a decade or more. Small, sporadic funding leaves policy charges eating the strategy.
What is a MEC and why does it matter?
A Modified Endowment Contract — a policy funded faster than the 7-pay test allows. MECs lose the favorable loan taxation that makes the strategy attractive, so LIRP designs stay just under the line.
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