“Using permanent life insurance contracts to supplement a qualified plan is well-established. Called SLIRP, or supplemental life insurance retirement planning, is helpful if one has maxed out on IRA’s or other qualified plans.
The “key” to making this work in the manner it’s designed is to over-fund a permanent life insurance policy up to the point where one extra dollar paid in premium would make the contract what’s known as a Modified Endowment Contract. Typically, this means a Universal Life policy. Another key factor is that it takes about 12-15 years of this maximum funding to realize the level of cash value to ensure long term success.
And, of course, this is a life insurance policy first. Properly structured, the face amount of the policy is kept as low as possible with the maximum amount of premium paid in allowed. And this is where so many of these go awry: failing to properly fund (over-fund) will derail this plan. If/when this happens…the end result hoped for often times isn’t realized.
Businesses purchase insurance of this type on their key executives to provide supplemental retirement benefits. Once again, the key for it to be successful is time and money…enough time to fund it properly and funding it to the level needed to generate the income later on. The income comes first in the form of withdrawals and then policy loans.
For business owners looking to start one of these on themselves, I always counsel my clients to make sure that they have the appropriate amount of insurance in-force before taking this additional plunge.
So, is SLIRP right for you? Best to meet with your professional insurance advisor to make sure.“