Life Insurance Retirement Plans (LIRPs) are oversold in our industry. I’ve seen them positioned in too many situations as a replacement for qualified plans, or sold to people who don’t have the cash flow, don’t have the liquidity, or frankly don’t even have a real protection need. It’s inappropriate in those situations.
But here’s the part that gets lost in the noise: Just because something is oversold doesn’t mean it’s not valuable when it’s used the right way. A LIRP can be a fantastic tool for the right person. The problem isn’t the strategy. It’s how and when it is being used.
When I think about where and when a LIRP actually makes sense, I always go back to the fundamentals: who is the person, and what is the need? This isn’t for someone just getting started. It’s not for someone who hasn’t taken advantage of the obvious tools already available to them.
This is for working professionals who have already maxed out their qualified plans (401(k), IRA and such). They’ve done the traditional financial planning, they’re doing the right things and they still have both the capacity and the need to do more, and importantly, they still have a protection need.
That last bit gets overlooked a lot, but if something happens to a LIRP client during their accumulation years, would it impact their family? Would it create a liquidity need? Would it affect their financial estate in a meaningful way? If the answer is yes, then now we’re having a different conversation, because at its core, this is still life insurance.
The death benefit isn’t a minor character; it plays the major supporting role. The death benefit protects against a real risk during the years when that risk actually matters a whole lot. And if structured properly, the policy can efficiently fill that need while also creating an additional pool of capital.
But again, that only works if expectations are set correctly. You need the right product. Not a generic, off-the-shelf policy, but something designed intentionally for this purpose. And you need a level of sophistication in how it’s structured and managed: optimized for accumulation. And just as importantly, you need the right mindset going in.
A LIRP isn’t a magic bullet. It’s not a shortcut or a scheme. It’s not a replacement for everything else. It’s a supplemental strategy for a very specific type of client, solving a very specific type of problem.
So yes—LIRPs are oversold, but for the right person, with the right need, and the right expectations they can be one of the more effective tools we have.
Learn more, check out our LIRP eBook.