Insured Retirement Plan: A Heavily Mis-Sold Strategy You Probably Shouldn’t Buy!

Let’s be real—if you’ve heard about the Insured Retirement Plan (IRP), chances are someone tried to sell it to you as the ultimate retirement and wealth-building strategy. They might have thrown in words like “tax-free,” “leveraged loans,” or “permanent insurance” to make it sound like a no-brainer.

Here’s the hard truth: most people should NOT be buying an IRP. This is an elite strategy, meant for a very small percentage of high-net-worth individuals—more specifically, business owners with significant non-registered investments.

Who Actually Benefits From an IRP?

If any of the following doesn’t describe you, walk away from this strategy:

• You’re a high-income business owner earning at least mid-to-high six figures annually.
• You’ve maxed out all registered investment accounts (RRSP, TFSA, pension, etc.).
• You have a large pool of taxable, non-registered investments.
• You need permanent life insurance (not just for the tax perks).

If you don’t check off all these boxes, then the IRP is likely not for you. But if you do? Let’s dig deeper.

How Does an Insured Retirement Plan Work?

At its core, an IRP is a leveraged strategy using a permanent participating whole life insurance policy. Here’s the breakdown:

1. You buy a permanent life insurance policy. It grows cash value over time, tax-sheltered.
2. You overfund the policy for 10+ years. Depositing $50,000–$250,000+ annually is common.
3. You borrow against the policy’s cash value. A bank gives you tax-free loans using your policy as collateral.
4. You receive tax-free income. This supplements your retirement while your investments remain untouched.
5. When you die, the death benefit pays off the loans. Whatever’s left goes to your beneficiaries tax-free.

Why High-Net-Worth Business Owners Love It

The IRP can be an incredibly powerful tool for wealthy business owners who have excess capital sitting in a taxable investment account. Here’s why:

• Tax-Sheltered Growth: The cash value inside the policy grows tax-free.
• Tax-Free Retirement Income: Loans from the policy aren’t considered taxable income.
• Tax Deductibility: If the loan is used for investment purposes, interest may be deductible.
• Estate Planning Perks: Life insurance pays out quickly, privately, and tax-free.

The Risks No One Tells You About

Sounds great, right? But here’s what your insurance advisor might conveniently leave out:

• It’s expensive. If you can’t commit to the annual funding requirements for 10+ years, don’t bother.
• Loans aren’t guaranteed. The bank can refuse to lend, change their terms, or require extra collateral.
• Interest rate risks. If rates spike, borrowing costs eat into your retirement income.
• Tax laws can change. Today, loan proceeds aren’t taxable, but who knows in 20 years?
• Locks you in. Once you start borrowing, making changes to the policy becomes difficult.

A Real-World Example

Let’s take a 40-year-old business owner who:

• Deposits $250,000 annually into an IRP for 10 years.
• At 65, he starts borrowing $332,000 per year tax-free for retirement.
• By 90, he’s taken out $17 million in loans.
• His life insurance policy has grown to $22 million, covering the debt and leaving $4.8 million to his beneficiaries.

For the right person, this strategy can create tax-efficient wealth. But again—if you don’t have huge taxable assets and high disposable income, it’s a bad fit.

Final Thoughts

The IRP is a niche strategy, but it’s aggressively pushed onto people who shouldn’t be touching it. If someone tries to sell you on it, ask:

• Have I maxed out all registered accounts?
• Do I actually need permanent life insurance?
• Can I afford to fund this for a decade?

If the answer is no to any of those, look for simpler and less risky alternatives. But if you’re a high-net-worth business owner with money burning a hole in your corporate account, this could be a game-changer.

Got questions? Drop them in the comments or reach out!