What is the cash value of a life insurance policy? A certain percentage of your cash value life insurance policy’s premium payment goes into a tax-deferred, investment-like savings component, known as the cash value of the policy. The exact amount that goes into savings is determined by your individual policy and the cash value account grows over time. You can access your policy’s cash value by withdrawing from it or taking out a loan against it, and that money can be used to provide tax-free income in retirement.

How can you use an LIRP to fund retirement? LIRPs can both bolster your retirement savings and fill in the gaps if there’s a stock market downturn. If you max out contributions to your traditional investment accounts, you can pay any extra funds into your cash value, creating an additional avenue for tax-deferred investment growth. In a down year for the stock market it might be more beneficial to pull from a cash value with a set rate of growth than from a retirement account with a depreciated value.

To build up enough cash value to supplement retirement, some policyholders choose to overfund their cash value life insurance policies by paying well over the required premium each month. The extra money they pay goes into the policy’s cash value and grows tax-deferred.

Use the cash value to supplement retirement

Many financial experts recommend the “4% rule,” withdrawing no more than 4% of your savings in each year of your retirement. When you own a cash value life insurance policy, you’ll have access to your policy’s cash value in addition to your retirement accounts. This allows you to be strategic about your retirement spending. For example, after a down year in the stock market, you can withdraw money from your policy’s cash value instead of drawing down from your IRA, allowing your IRA savings to replenish. Contact us to request a free life insurance quote.

Your life your choices.