Insured Retirement Plans pair permanent life insurance with retirement planning to create tax-advantaged income. These plans grow through overfunded permanent life insurance policies like Whole Life and Universal Life options while maintaining death benefits. Corporations can establish similar arrangements through Corporate-Owned Life Insurance for executive benefits. The strategy offers tax-free wealth accumulation and policy loan access, though higher costs and potential surrender charges require consideration. Well-structured plans deliver tax-free retirement income and market volatility protection while managing risks of policy lapse or underperformance. Costs include mortality charges and administrative fees, offset by tax-deferred growth and tax-free distributions. Available in both the US and Canada (as Insurance Retirement Strategy), these plans provide pre-retirement liquidity and guaranteed income features that differ from RRSPs. With professional guidance and disciplined funding, Insured Retirement Plans share core concepts with Infinite Banking, both using life insurance for wealth building and financial control.
An insured retirement plan is a strategy that involves pairing a permanent life insurance policy with retirement planning to create tax-advantaged income. It is a strategy using a life insurance policy that includes a cash value component which, over time, grows on a tax-deferred basis. According to research from LIMRA, a leading research organization in the insurance industry, a properly structured insurance plan can be an effective tool for both protection and wealth accumulation when included as part of a comprehensive retirement strategy.
An insured retirement plan works by overfunding a permanent life insurance policy to maximize cash surrender value growth while maintaining the death benefit. The policyholder makes premium payments above the minimum required amount, with the excess directed to the policy’s cash value, which typically grows at 4-6% annually depending on the policy type. According to research published in the Journal of Financial Planning, this strategy creates a financial vehicle that can later be accessed through policy loans or withdrawals without triggering taxable income, effectively creating tax-free income during retirement.
The types of insured retirement plans include various forms of Life Insurance such as Whole Life, Universal Life Insurance Policy, Indexed Universal Life, and Variable Universal Life policies. Whole Life offers guaranteed cash value growth rates averaging 1.5-3.5% plus potential insurance dividend scales, while Universal Life provides market-linked returns typically capped between 9-13% with downside protection. Data from LIMRA’s Insurance Barometer Study shows that Universal Life Insurance has become increasingly popular for insurance retirement plans, with significant growth in this sector over the past decade.
Corporate insured retirement plans do exist through arrangements like Corporate-Owned Life Insurance and Bank-Owned Life Insurance that provide tax benefits and supplemental executive benefits. According to research published by Deloitte, these plans represented over $142 billion in corporate surplus across Fortune 1000 companies in recent years, with a significant percentage of major corporations utilizing some form of corporate insured retirement plan program. These strategies remain effective tools for business owners seeking to fund non-qualified deferred compensation arrangements for key individuals in a dynamic business or family business.
Tax-free wealth growth potential Tax-free cash access through loans Life insurance protection for beneficiaries Financial security beyond standard investments Estate planning benefits including intergenerational wealth transfer No annual contribution limits unlike pension plans Additional insurance protection through riders
Higher insurance costs and cost of insurance premium Potential surrender charges if accessed too early Policy values tax risks if not structured properly Requires careful planning and professional advice Credit score requirements for leveraging strategies According to Dr. Wade Pfau, Professor of Retirement Income at The American College of Financial Services and author of “Safety-First Retirement Planning,” retirement income strategies using insurance products can provide value for certain individuals, though the specific advantages depend on individual circumstances and proper implementation.
The benefits of an insured retirement plan include tax-free income during retirement, protection from market downturns in your investment portfolio, financial legacy creation, and potential critical illness insurance benefits. Research from the Society of Actuaries indicates that properly structured plans can deliver significantly more disposable income compared to taxable investments due to tax advantages, with the added security of death benefits for economic security. These plans can provide protection against sequence-of-returns risk that traditional portfolios might not offer, helping maintain your desired standard of living and retirement lifestyle.
The risks of insured retirement plans include potential policy lapse, underperformance of investment component growth, high surrender charges, and insurance company insolvency. Data from the American Council of Life Insurers shows that a small but significant percentage of permanent life policies lapse within the first few years, with surrender charges often starting at 10-15% and gradually decreasing over 10-15 years. The most significant risk is poor investment performance due to prolonged low interest rates, which has affected many policies issued in previous decades that failed to meet initial projections of investment growth.
The costs associated with insured retirement plans include mortality charges, administrative fees, premium loads, and surrender charges, collectively reducing returns by 1.5-3.8% annually. According to research by financial analyst Michael Kitces, founder of the Nerd’s Eye View blog, a typical policy includes significant first-year commissions, with renewal commissions in subsequent years, plus annual insurance costs and cost of insurance charges that increase with age. These front-loaded expenses require a long-term commitment to overcome the initial cost basis and realize competitive returns.
The tax advantages of insured retirement plans include tax-deferred cash value growth, tax-free loans, and income-tax-free death benefit to beneficiaries. According to data published by the American Council of Life Insurers, policyholders accessing income during retirement through policy loans have realized significant tax savings, with substantial benefits over a typical distribution period. Nobel Prize-winning economist Dr. Robert Merton of the MIT Sloan School of Management argues for the crucial need to ensure that any withdrawal strategies devised will be tax efficient for the retiring investor and mentions the “crucial significance that tax benefits will have to their retirement outcomes”.
Insured retirement plans are available in Canada where they’re often marketed as the “Insurance Retirement Strategy” or “Investment Loan Strategy.” Canadian insurers offer these plans through exempt life insurance policy vehicles that grow tax-advantaged under Canadian Tax Legislation, as documented by the Canadian Life and Health Insurance Association. As reported by Jamie Golombek, Managing Director of Tax and Estate Planning at CIBC Private Wealth, insurance can be used in retirement planning under the current Canadian tax framework with tax advantages. However, actual implementation details differ from one situation to another.
Life insurance can be used as income at retirement through policy loans, partial surrenders, or dividend withdrawals from permanent policies with accumulated cash value. According to Journal of Financial Service Professionals research, a large number of permanent life insurance policy owners use their cash values for additional retirement income well into retirement years. When an insured retirement plan is properly constructed, it has the potential to create a stream of tax-free income that may supplement traditional retirement objectives while affording life insurance benefits that cannot be obtained in other vehicles.
You can access your funds before retirement in an insured retirement plan through policy loans, partial surrenders, or direct withdrawals at any age without penalties. Unlike qualified plans with 10% penalties for pre-59½ distributions, life insurance policies allow access to funds regardless of age, as confirmed by IRS guidelines on policy distributions. This liquidity advantage of insured retirement plans provides penalty-free access to capital during working years for emergencies, opportunities, or major purchases like a vacation property or real estate that traditional retirement accounts may not offer.
Insured retirement cash flow is the systematic withdrawal of funds from a life insurance policy’s cash value through loans, partial surrenders, or dividends to create income during retirement years. Analysis from Morningstar’s retirement research division indicates that typical distribution strategies aim for sustainable annual loan rates lasting through retirement, with policies generating significant supplemental income based on accumulated cash values. Properly structured cash flow strategies can maintain death benefits during the income phase, providing both income and legacy benefits for policyholders and beneficiaries.
The guaranteed income options in insured retirement plans include annuitization, fixed policy loans, and guaranteed minimum income benefit riders that provide lifetime income streams. Insurance companies offering these options typically provide various payout rates, with options for deferred income after retirement. According to research by Dr. Moshe Milevsky, Professor of Finance at York University’s Schulich School of Business and author of numerous books on retirement income planning, guaranteed income products can play an important role in retirement security, particularly for addressing longevity risk.
The difference between an insured retirement plan and an RRSP (Registered Retirement Savings Plan) is primarily in tax treatment, access to life insurance, and beneficiary benefits. RRSPs offer immediate tax deductions with fully taxable income withdrawals and contribution limit of $29,210 (2023), while insured retirement plans provide no upfront deduction but tax-free access and unlimited contribution maximum potential. According to resources from the Financial Consumer Agency of Canada, these different tax treatments create fundamentally different retirement outcomes, with each vehicle having distinct advantages depending on individual circumstances and goals.
To build wealth with an insured retirement plan, systematically overfund a permanent life insurance policy during working years while maximizing tax-advantaged growth as an investment strategy. Research from LIMRA indicates that optimal funding patterns involve premium payments significantly above the base policy cost over extended periods, generating competitive internal rates of return over long time horizons. Successful wealth-building through insured retirement plans requires disciplined funding, efficient policy design, and patience through the early years, making it particularly suitable for a 45-year-old incorporated business owner with excess income seeking additional tax-sheltered investment opportunities.
The top insured retirement plan, aka financial advisors include specialized insurance advisors with advanced designations like Chartered Life Underwriter (CLU) and Retirement Income Certified Professional (RICP). According to research from LIMRA and the Society of Financial Service Professionals, industry leaders in this space include independent insurance brokers who manage substantial assets in cash value policies. The most successful insurance professional specialists have transitioned from actual product selling to comprehensive financial planning approaches, with many holding multiple advanced designations and significant experience in creating expert life insurance solutions for comfortable retirement.
Insured Retirement Plans and Infinite banking strategy make use of permanent life insurance policies (whole life for Infinite Banking and universal life for IRPs) as their preferred vehicle of finance.
Alternative to conventional banking/investing: Both are structured as alternatives to the mainstream financial system and retirement planning methods.
The largest philosophical difference is that Infinite Banking is all about being your own banker for the whole range of your financial life, while IRPs are more narrowly focused toward retirement income planning.
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