Life insurance and retirement planning

Is a life insurance retirement plan a qualified retirement plan?

No. “Life insurance retirement plan,” or LIRP, commonly describes using a personally owned permanent life insurance policy's cash value to supplement retirement resources. That name does not make the policy a tax-qualified pension, a 401(k), or an IRA. Buying a personal policy does not by itself create a deductible retirement-plan contribution.

A cash balance pension is a defined benefit retirement plan. Its contribution rules and employer obligations are different from an insurance policy's premiums, cash value and death benefit.

Can insurance be part of a qualified plan?

Some qualified plan designs may include life insurance subject to plan-specific rules. The insurance benefit must remain incidental to the plan's retirement purpose. This is a professional plan-design question—not a blanket tax deduction for an insurance premium.

Ask the plan administrator, actuary and CPA to review permitted coverage, funding, participant taxation and what happens to a policy when you retire or leave the plan. Fully insured plans also have specific requirements; an insurance illustration alone does not demonstrate compliance.

What should you review before choosing an insurance strategy?

• Protection: the actual death-benefit need and who should own and benefit from the policy.
• Costs: premiums, insurance charges, commissions, surrender charges and the cash needed to keep coverage in force.
• Illustrations: which values are guaranteed and which depend on assumptions about performance or crediting.
• Access: loans and withdrawals can reduce policy value and death benefits. A lapse or surrender with an outstanding loan can create taxable income; tax-free access is not guaranteed.
• Plan obligations: employee coverage, sustainable funding, ongoing administration and compliance with qualified-plan requirements.

Start with your business facts, not a policy projection

WealthPrime's analysis starts with your age, income, filing status, state and business details. It does not establish policy suitability or promise an insurance deduction. Review any proposed strategy with your CPA and qualified insurance and retirement-plan professionals before implementation.