Is a whole life insurance retirement plan for you? Evaluate this article and think about the possible consequences of different approaches you might choose for creating your retirement plan. An LIRP coupled with other well chosen retirement products could be that secret ingredient to your recipe for a secure and comfortable retirement. How would you like to have the security of knowing that even in your old age, you will still be able to live comfortably by relying on your retirement income?
You probably already know that when it comes to investments, the best ones are those that come attached with a term or annuity contract. This is why many people prefer a permanent life insurance policy over a LIRP. The reason for this is that a LIRP typically incorporates the interest part as well as the preservation of the cash value element of the whole life insurance policy. In other words, the cash value of a permanent life insurance policy is allowed to grow even if you do not have enough funds left to cover the insurance's surrender value.
On the other hand, a lirp allows you to draw down the fund over time. The insurance companies allow you to choose how long you want your account to run for. The money accumulated within the account is tax-deferred until such time as you withdraw it. Some insurance companies allow their customers to opt for a withdrawal penalty before they draw their sum of money from the account.
It should be pointed out that this form of investment does not provide financial security in the way that other investment vehicles might. It only ensures that you continue to pay taxes on the earnings from the account. The tax rates when the account runs out of money are usually quite high. For this reason, many financial security experts advise that life insurance retirement plan holders draw more funds from their pension plans before they decide to opt for a LIRP. However, many financial security experts also recommend an early retirement as a financial protection against life insurance rates being too low or too high. If you wait until retirement age and then opt for a LIRP, you are only guaranteed that your death benefits will be sufficient to pay for your dependants.
Another aspect of the LIRP that critics point out is the fact that you cannot ensure a consistent flow of income from it. While this aspect may not be a problem for most employees, those who rely entirely on the death benefit can become dependent on the program. This is especially true for employees who receive a single lump sum and then have to survive on a single income tax free salary. Those who take a fixed income annuity can become dependent on this income stream in case they die. While life insurance retirement plan pays your death benefit if you die, it does not pay the lump sum you receive unless you take an annuity with a fixed rate of interest. Click here to learn more about Life Insurance Retirement Plan.
The final criticism of the LIRP revolves around the fact that you do not get any flexibility when it comes to the amount of cash accumulation you can enjoy during lifetime. In most insurance plans, the death benefit is invested in a variety of tax-free investment options and then the residual cash you accumulate from these investments is used as the source of extra cash. In the case of the LIRP, you cannot choose the tax-free income stream upon retirement. Therefore, the sum of your accumulated cash at retirement will be less than the cash you could have received had you chosen to draw a cash balance from your annuity or a conventional life insurance policy.
You can get more enlightened on this topic by reading here: https://en.wikipedia.org/wiki/Whole_life_insurance.
