Retirement Insurance Coverage: An Expert Guide (2025)

Retirement insurance coverage can be an important aspect of your retirement planning, but it’s not always the right choice. For starters, you can only use a Life Insurance Retirement Plan (LIRP) if you have a permanent life insurance policy, such as whole or indexed universal life insurance. Unfortunately, you can’t start an LIRP account using a term life policy.

Retirement insurance benefits include tax-free withdrawals and the comfort of an additional financial safety net. However, permanent life insurance plans can be expensive, especially if you buy a plan later in life.

Either way, an LIRP insurance plan might be right for you. Read on to learn more about retirement insurance coverage and if it might be right for you. Then, compare the best retirement insurance companies to find the best policy for your lifestyle.

Retirement Insurance Coverage Explained

When it comes to retirement, you can never be too secure. At first thought, we often imagine life insurance as a policy that pays out in the event of an insured’s passing, and that is true. However, that’s only one thing a life insurance policy can do.

The practice of life insurance, in particular, predates the formation of our country by 70 years, so our laws tend to be friendly toward this historical practice. In the three centuries since its conception, life insurance has expanded in several directions and now offers a slew of options and benefits.

Life insurance is about more than a death benefit, or at least it can be. Whole life policies are long-term standing agreements, and as such, they build equity over time. Speaking with those new to this idea, equity can be confusing. Let’s try to explain.

Agreements hold financial value and can be treated as a commodity. For example, when you sign a mortgage, your word to pledge money over an extended period of time (usually 30 years) is immediately bestowed with value. The bank takes your word to the bank, so to speak.

That’s why your mortgage lender can turn around and sell your mortgage, but it’s also why you can take out a second mortgage on top of the one you have. Written agreements hold literal value.

Whole life insurance works the same way. It’s an agreement of funds over an extended period of time, so it has value. Specifically, it accrues cash value which can become your money.

Understanding How Retirement Insurance Coverage Works

To take advantage of a life insurance retirement plan, you have to set up your LIRP account properly. To gain cash value, the fast way is similar to how you pay off a mortgage quickly — you overpay. If you’re beginning your retirement planning through this method early, then this shouldn’t be a problem.

The hack — should we call it that — is to request a high enough payout to give you the highest chance of long-term equity. To do this, you’ll want to select a plan with a low enough premium that you can regularly overpay but a high enough premium so that cash value can build into a nest egg.

The benefit here is that while death benefits have tax implications, taking a loan out against the equity you’ve built won’t. There’s nothing more stressful than hitting an emergency situation and staring at your Roth or 401k, wondering if the emergency is worth a penalty. This provides an “out.”

LIRP insurance is also a fiscally sound manner of transferring wealth. Should you live long enough and pay enough to chip in more than the initial payout amount, they’ll just raise the death benefit to accommodate what you’ve done.

Disadvantages of Retirement Insurance Coverage

It’s the question most often received when talking about insurance retirement plans. “If there are only upsides, then how does the insurance company still win?” It’s a great question and worth exploring.

If you’re late to the game, entering this arena can be a challenge. The older you are, the higher life insurance premiums begin by default for any given payout amount. The higher your premiums, the more you’ll have to shell out in order to overpay.

That doesn’t rule you out, but it means you should proceed with caution. It’s great to plan eagerly, but you should never agree to a premium amount without being positively certain that you can afford it, even during the worst month or year you can anticipate. The “catch” is if you lose the policy, it’s gone.

How to Decide if an LIRP Can Fund Your Retirement

Life insurance retirement plans aren’t an investment. There’s no stock market ticker on the other end of your premium. For that reason, you might expect to see tremendous cash value increases in a year in which your chosen insurer has performed well, or you’ll see exactly what you’ve put in and not a dime more.

The greatest benefit of hoarding capital in this particular manner is that your funds won’t diminish with any market crash. We like to imagine 2008 as an oddity, but global stock market crashes happen at a regular pace of nearly once per decade.

Life insurance is a conservative option. It offers a generous death benefit to your beneficiaries, the chance of building secure cash value, the ability to take out a loan at a reasonable interest rate in the event of an emergency, and the option to fully cash it out if chaos ensues. Find out how bad it is to not have life insurance.

Beyond that, should the worst happen and you find yourself terminally ill, most providers allow the final death benefit to be disbursed sooner to provide even more aid in life’s most difficult moments. Through all this, it’s among the most reasonable of plans to have.

It won’t pay out head-spinning figures, nor will it let you down as though you’d dropped your life savings into Sears stock. It merely provides a steady, stable, future-proof option. And really, what more could you ask for?

The Best Retirement Insurance Companies

In essence, choosing a life insurance company is like gambling on a horse. You want to select the steed you expect to win the race. How your cash value builds is determined in large part by the size and reputability of the provider.

Finding the right plan is about locating the proper intersection between premiums and reputation. State Farm may very well be the most conservative bet — they’re the largest provider on the market and a multi-billion dollar company. There’s a low chance they won’t see regular gains. Learn more in our State Farm Insurance Review.

On the other hand, smaller companies can offer preferential rates because they’re trying to grow, so they appreciate each new member more. Having a smaller money pool, they may grow like wildfire or suffer insurmountable losses. It’s a risk built into the price.

LIRP vs 401k & IRA

Were you a farmer with a plot of land, you might not ask yourself whether to plant apple trees or pear trees. Why not plant both?

401k and IRA programs were developed by government entities, and financial advantages are built in. IRAs are preferable for their tax benefits and 401ks for their employer matching. The extent of their benefits is often defined by the income of the individual in question.

Both of these programs are investments and can sway with the market. These plans can rely on extensive expertise, either on your part or of those you elect to handle your money. Still, the money in these accounts belongs to you, rain or shine.

Life insurance plans are a bit different. Because of varying payout levels, if you begin soon enough, you can afford a cash value policy at any income level and allow it to build accordingly. However, because these plans are through private firms, they’re not guaranteed. If you don’t pay them, you can lose them. Learn more in our Securian 401k guide.

Case Studies: Real-World Scenarios of Retirement Insurance Coverage

Case Study 1: Building Cash Value for Retirement

John, a 45-year-old individual, decided to invest in a life insurance retirement plan (LIRP) to build cash value for his retirement. He opted for a policy with a low premium that allowed him to overpay regularly, accumulating cash value over time.

By the time John reaches retirement age, his LIRP has grown substantially, providing him with a significant nest egg to supplement his retirement income.

Case Study 2: Financial Security and Wealth Transfer

Sara and Mike, a married couple in their early 50s, wanted to ensure financial security and a smooth wealth transfer to their children. They opted for a joint LIRP policy with a death benefit that could accommodate their contributions.

This way, they could overpay into the policy and build equity over time. In the event of their passing, the death benefit would provide their children with a substantial inheritance, ensuring their financial well-being.

Case Study 3: Protection Against Market Volatility

Emily, a 35-year-old investor, wanted to safeguard her retirement savings against market volatility. She chose a life insurance retirement plan that offered a conservative approach, providing a steady and stable option for her future.

With a LIRP, Emily didn’t have to worry about her funds diminishing during market crashes, providing her with peace of mind and a reliable source of income during her retirement years.

Case Study 4: Flexibility in Times of Need

Mark, a 60-year-old retiree, faced unexpected medical expenses and needed financial support. Fortunately, Mark had a LIRP that allowed him to take out a loan against the equity he had built over the years.

He could access the funds without facing tax implications, providing him with the flexibility to address his emergency situation without depleting his other retirement savings.

Find the Right Retirement Insurance Coverage Today

401ks and IRAs rely on the stock market, whereas whole-life policies rely on your ability to continue payments — and preferably overpayments. Retirement planning is tricky. The sooner you can build your future, the better.

If you can avoid it, don’t forsake one method for another. Gather quotes, do your research, and chart the path that’s most beneficial for you and yours. Rather than apples or pears, plant both if you can.