Insured Retirement Plans (IRP)

May 3, 2022

One of the most utilized tools in funding an estate plan is term or permanent life insurance.

The IRP is a financial planning strategy that uses life insurance to build your wealth for retirement with the following benefits:

  • A solution to current and future insurance needs
  • An opportunity to take advantage of tax-deferred growth
  • An innovative way to supplement your financial needs in retirement

The IRP can help you achieve the retirement lifestyle you’ve always imagined by complementing your retirement savings. An IRP is not a type of life insurance but rather a retirement planning concept – where the accumulated value of a permanent life insurance policy can be used to provide you with future cash flow that will supplement your retirement income.

Overall, with an IRP strategy you are building wealth for retirement, and are at the same time protecting your loved ones’ financial interest by having a life insurance policy in place.

How does an IRP work?

A permanent life insurance policy (Whole Life or Universal Life) offers two main benefits to insured individuals when a transfer of risk occurs: death benefit proceeds and cash value savings.

  • Death Benefit
    This a lump sum, tax-free amount of money that is outlined in your insurance policy that gets paid to your beneficiaries if you die while your life insurance policy is in effect.
  • Cash Value
    Unlike the death benefit, cash value balances are available to the insured or owner of a life insurance policy while they are still alive. This cash value component typically earns interest or other investment gains and grows tax-deferred.  You have several options if you want a cash value life insurance policy. Each policy type accrues cash value differently, but in all cases, you can get to your cash value through a loan, withdrawal, or surrender.

The insurance policy’s cash value is often used to build wealth tax-free. The IRP strategy involves taking out a series of loans using the insurance policy as collateral, then use the loan as a tax-free money at retirement.

Loan details

The maximum amount the financial institution will lend will be based on a percentage of the cash value of the policy, which will range from 50% to 90%. This will depend on the investment mix and the issuer. Since the loan rate will not be guaranteed or linked to the growth within the policy, the lending institution will regularly monitor the ratio of the loan to the cash value. To secure your income stream, the financial institution will ensure this ratio remains within its particular threshold. The loan advances generate a tax-free cash flow, which may be used in a number of different ways. For instance, you can draw a supplemental retirement income, make a large purchase or use the money for investment purposes. Depending on your personal situation, the interest on the loan may be tax deductible, thereby increasing your after-tax wealth even further.

In addition to this, the interest payments on the loan can deferred. The policy owner is not required to pay monthly interest payments on the loan. Instead, the interest is capitalized and deducted from the death benefit along with the principal loan balance. The remaining balance of the death benefit is paid out to named beneficiaries. 

Corporate insured retirement plan

This tax planning strategy also works well for small corporations that have excess capital to invest. The same three components make up the corporate IRP which has similar benefits to the personal IRP.


Once the policy has accumulated a considerable cash value, your company can use those assets to obtain a loan from a financial institution. The loan can, for instance, be used to fund a new business venture or to buy out a retiring partner. You can also receive the income as a dividend for personal use. If you own a holding company, this is the approach to consider.


As mentioned, assets within a tax-exempt policy grow on a taxdeferred basis and are only taxed upon withdrawal. Your company can allocate excess earnings or current investments to a tax-exempt policy to maximize the growth of those assets. Combined with the insurance benefit, the overall value of the policy can surpass what would otherwise be earned in taxable investments. * This is based on current tax rules. To qualify for a loan or line of credit, you must satisfy credit criteria.

Life insurance

Many companies require insurance coverage to protect themselves from the loss of key employees or to fund a buy-sell arrangement between partners. By using tax-exempt life insurance, you can protect your company as well as create tax deferred investment opportunities.

Additional benefits

The outstanding loan accumulates and would be re-paid by the corporation. If structured properly, the corporation will receive all the proceeds of the policy. The benefit paid to the corporation creates credit in its Capital Dividend Account (CDA) equal to the death benefit less the adjusted cost basis of the policy. The proceeds of the policy would therefore provide cash to the corporation to pay off the outstanding loan. This then allows the company to pay tax-free dividends to any shareholder up to the amount of the credits available within the CDA.

Important to note:

While leveraging against a life insurance policy provides important tax benefits, withdrawing directly from the life insurance policy may offer an alternative for clients preferring to avoid loans as part of their financial strategy. Although the money withdrawn from the life insurance policy would be taxable, the cumulative savings provided by its long-term tax-sheltered status might offset the cost. It’s important to maintain a holistic approach throughout the relationship, while keeping all parties informed about the alternatives and options available to them.

Ultimately, every financial strategy offers advantages and drawbacks –Speak with your tax advisor and financial planner to find out how you can take advantage of this benefit.

About the author

  • Pam is the founder and “boss lady” of Savanti Insurance Agency and Savanti Investment Team (attached to PEAK Securities Inc.). She has over 15 years where she specializes in planning, investments, risk management, and tax-effective strategies for clients’ personal and/or corporate financial needs.

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Although this article was written with the utmost care and based on sources deemed reliable, there is no guarantee of its accuracy or applicability to all specific cases. This article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. All content and information are of a general nature and does not address the circumstances of any particular individual or entity. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. The opinions expressed in this article do not necessarily reflect those of Peak Securities inc.